Standard of arbitral reasons in Australian domestic arbitrations – Westport Insurance Commission v Gordian Runoff Ltd

Background

In Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255 (“Oil Basins”), the Victorian Supreme Court generated much controversy in the Australian arbitration community by holding that, in certain cases, the standard of reasons required in arbitrations under the domestic legislation was equivalent to that of a common law judicial decision. This decision was seen as undermining the desirability of arbitration as an alternative dispute resolution mechanism by increasing its complexity and increasing the risk of a costly appeal process.

In Gordian Runoff Ltd v Westport Insurance Commission [2010] NSWCA 57 (“Gordian Runoff”), the New South Wales Court of Appeal declined to follow the approach taken in Oil Basins, preferring the test applied by Donaldson LJ in Bremer Handelgesellschaft mbH v Westzucker GmbH (No 2) [1981] 2 Lloyd’s Rep 130 (“Bremer”), as approved by the Privy Council in Bay Hotel and Resort Ltd v Cavalier Construction Co Ltd [2001] 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’”

The High Court Decision

The decision in Gordian Runoff was appealed to the Australian High Court. In Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37, the majority criticised the approach taken in Oil Basins as placing “an unfortunate gloss upon” the requirement of an arbitrator to give reasons.

According to the majority, “no wholly satisfactory formula can be found to flesh out” the obligation to give reasons. They accepted the test formulated by Donaldson LJ in Bremer, and noted that the quality and standard of reasons required was referable to the nature of the dispute and the particular circumstances of the case.

However, it is important to note that the decision made substantial reference to the old New South Wales Commercial Arbitration Act, which is no longer current law in New South Wales. Furthermore, there are sufficient changes in the new Commercial Arbitration legislation that it is not clear to what extent the Court’s decision will apply under the new statutory framework.