• |

Alert – Westport v Gordian - The High Court clarifies an arbitrator's obligation to give reasons

7 October 2011

The extent to which an arbitrator must provide reasons for an award, and the test to be applied to determine the sufficiency of those reasons, has for some time, been the subject of uncertainty as a result of inconsistent decisions across Australian jurisdictions.  

October 5 2011, the High Court handed down its judgement in Westport Insurance Corporation & Ors v Gordian Runoff Limited,  clarifying an arbitrator's obligation to give reasons.

Background to the proceedings

  1. The original dispute between the parties concerned the terms of reinsurance contracts and the application of s.18B of the Insurance Act 1902 (NSW) which operates to limit and exclude liability.

  2. The arbitration panel delivered their written award in favour of Gordian.

  3. Westport sought leave to appeal that award, arguing, amongst other things, that the arbitrators had erred in law by failing to provide adequate reasons for their decision as required by section 29(1)(c) of the Commercial Arbitration Act 1984 (NSW)(which has since been replaced by the Commercial Arbitration Act 2010 (NSW). 

  4. That appeal was heard by Einstein J in the Supreme Court of New South Wales. Einstein J held that there was an error of law as the tribunal misconstrued section 18B of the Insurance Act. 

The Court of Appeal decision

  1. The decision of Einstein J was subsequently overturned by the New South Wales Court of Appeal in Gordian Runoff Limited v Westport Insurance Corporation1.

  2. In that judgement, the Court of Appeal considered that the applicable standard was that which was stated by Donaldson LJ in the English Court of Appeal case of Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2)2(Bremer).

  3. According to Bremer, the only requirement of an arbitrator’s award was that it:

    1. set out the arbitrator’s determination, based on his/her view of the evidence, of what did or did not happen

    2. explain succinctly why, in the light of what happened, the arbitrator reached his/her decision

    3. state what the arbitrator’s decision is.

The uncertainty and the existing tension between Australian jurisdictions

  1. The New South Wales Court of Appeal declined to follow the decision of the Victorian Court of Appeal in Oil Basins Limited v BHP Billiton Limited3. 

  2. The law in Victoria in accordance with Oil Basins was that an arbitrator was required to approach the task no differently from the way in which a judge approaches the task of providing reasons for judgement.

  3. Accordingly, the New South Wales Court of Appeal created a dichotomy between the States as to the requirement for arbitrators to provide reasons. 

The judgement of the High Court of Australia

  1. The majority of High Court applied the standard described by Donaldson LJ in Bremer, in accordance with the judgment of the NSW Court of Appeal, but reached a different outcome to the Court of Appeal, having concluded that the arbitrators were obliged to explain succinctly why the various integers of s.18B of the Insurance Act were satisfied.

  2. The Court noted that in Bremer, 'Donaldson LJ had gone on to distinguish a reasoned award from reasons for judgment,'4

  3. Further, in relation to the Victorian approach,  the majority of the High Court stated that 'the reference in Oil Basins to the giving by the arbitrators in that dispute of reasons to a "judicial standard" and cognate expressions placed an unfortunate gloss upon the terms of s 29(1)(c)' 5 and preferred to focus on the observations made in Oil Basins that what is required to satisfy section 29(1)(c) will depend upon the nature of the dispute and the particular circumstances of the case.

Significance

  1. Similar requirements to section 29(1)(c) of the Commercial Arbitration Act 1984 (NSW) are found in the more recent Commercial Arbitration Act 2010 (NSW), in most of the Commercial Arbitration Acts of other States, and also in article 31(2) of the UNCITRAL Model law, which applies in Australia in the context of international arbitrations under the International Arbitration Act (Cth).

  2. Accordingly, although the High Court noted that no wholly satisfactory formula can be found to flesh out the requirement in section 29(1)(c), its application of the NSW approach, is of relevance to all participants of commercial arbitration in Australia.

1 [2010] NSWCA 57
2 [1981] 2 Lloyd's Rep 130
3 (2007) 18 VR 346
4 [2011] HCA 37 at [51]
5 [2011] HCA 37 at [53]

Author(s) Roman Rozenberg, Peter Wood