In Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd[2014] FCA 414, the Federal Court of Australia dismissed an application to set aside an arbitration award rendered in Australia under the UNCITRAL Model Law on International Commercial Arbitration on the basis that it was in conflict with the public policy of Australia. The decision inspires confidence in Australia as a pro-arbitration jurisdiction.

At times, there has been a perception that some Australian courts have earned a reputation of being too interventionist on matters of arbitration. However, a recent run of cases has helped quash this perception, notably that of Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd, which took place in the Federal Court this year.

The case concerned an attempt to set aside an arbitration award published in Australia. The application was on the basis that a breach of natural justice occurred during the course of the arbitration, rendering the award contrary to Australian public policy and therefore liable to being set aside under article 34(2 (b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration.

How the dispute arose

Australian company Emerald Grain had entered into a contract with Singapore-based Agrocorp where it agreed to sell Agrocorp canola which was to be shipped in bulk to Bangladesh. The contract included an arbitration agreement requiring any disputes to be resolved under the Grain Trade Australia Dispute Resolution Rules.

A dispute arose over Emerald Grain’s failure to load the full shipment of canola, and the damage incurred by Agrocorp due to delays relating to import permits, which was said to be a consequence of Emerald Grain’s failure to load the full shipment.

Agrocorp commenced an arbitration in Australia against Emerald Grain pursuant to the arbitration agreement and the International Arbitration Act 1974 (Cth). Emerald Grain crossclaimed.

The arbitral tribunal rendered an award under the International Arbitration Act which found substantially in favour of Agrocorp.

Emerald Grain’s challenge

Emerald Grain applied to the Federal Court of Australia to set aside the award under article 34(2)(b)(ii) of the Model Law, which provides that an arbitration award may be set aside if it is in conflict with the public policy of Australia.

The Model Law has force in Australia under provisions of the International Arbitration Act. Australian courts are to regard an arbitration award governed by the Model Law and the International Arbitration Act as binding and are not to set aside such an award other than as provided for under the International Arbitration Act.

Section 19 of the International Arbitration Act declares that an award is in conflict with, or is contrary to, the public policy of Australia within the meaning of article 34(2)(b)(ii) of the Model Law if the making of the award was induced or affected by fraud or corruption; or if a breach of the rules of natural justice occurred in connection with the making of the award.

In its application, Emerald Grain contended that the award was made in breach of the rules of natural justice for two reasons:

  • There was no evidence of probative value for the tribunal to have made certain findings (the ‘no evidence’ claim).
  • The tribunal’s findings were based on its own opinions and ideas without giving Emerald Grain adequate notice to respond to those views (the ‘no hearing’ claim).

Emerald Grain subsequently sought to rely on the words “among other things” in its written submissions to introduce new grounds for challenge which went beyond those relied upon in its originating process.

The court’s response

The court rejected the ‘no evidence’ claim on the basis that many of Emerald Grain’s complaints were that the tribunal’s finding of facts were wrong, rather than based on a lack of evidence. Noting that a breach of natural justice arises only if there is no relevant and probative evidence capable of supporting a particular finding of fact, the court considered that there was sufficient evidence on which the tribunal could have reached its findings, even if such findings were flawed in logic or were simply incorrect.

The court also rejected the ‘no hearing’ claim. It noted that both parties clearly articulated their positions by way of submissions and supporting materials, and, therefore, each party had been given an adequate opportunity to present and defend its case. On this basis, there was nothing unforeseeable, as Emerald Grain contended, about the tribunal preferring Agrocorp’s arguments. Similarly, Emerald Grain failed to establish how it might have persuaded the tribunal to reach a different decision if the tribunal had given Emerald Grain more notice to present its complaints.

In doing so, the court ignored those grounds in Emerald Grain’s written submissions which raised matters not sufficiently linked to a fair reading of the grounds set out in its originating process. It held that, had Emerald Grain been permitted to raise those matters, the three-month time limitation under the Model Law to apply to set aside awards would be frustrated, and further, the policy of upholding arbitral awards would be compromised.

Accordingly, the court dismissed Emerald Grain’s application to set aside the award on all grounds.

Natural justice, public policy and arbitration awards

The decision clarifies the role of Australian courts when called upon to set aside arbitration awards on the grounds of public policy. It shows that:

  • The court must be vigilant not to treat a challenge to an arbitration award made on the grounds of conflict with rules of natural justice as if it were a challenge to findings of facts by a first instance tribunal, from which an appeal may lie.
  • The court must determine whether the tribunal, in the process of finding the facts (whether correctly or incorrectly), breached the rules of natural justice. In doing so, the court must not examine the facts of the case afresh or fully revisit the questions that were before the tribunal. Instead, it must consider whether the facts found were open to the tribunal on the evidence before it.

The case also provides direction on when arbitration awards may breach the rules of natural justice. It shows that:

  • A breach depends on the content of the rule in the context in which the question arises.
  • The applicant bears the onus of establishing breach, and that the breach materially bore on the adverse decision.
  • Parties to international arbitrations governed by the Model Law and the International Arbitration Act are entitled to expect that the relevant provisions will be construed and applied with some uniformity in the New York Convention countries.
  • Decisions from New York Convention countries make clear that arbitration awards should be read generously so that only breaches of the rules that have actually caused prejudice are remedied. Similarly, courts should be reluctant to find an award to be in conflict with, or contrary to, public policy unless the complaint offends fundamental notions of justice and fairness.

Implications of the decision

The case highlights Australia’s pro-arbitration stance and reinforces the finality of arbitration awards. It demonstrates the Federal Court’s willingness to consider relevant decisions of courts in other Convention countries to ensure consistent interpretation of the Model Law.

The case also highlights the difficulties in arguing, at least in Australia, that an award should be set aside on public policy grounds on the basis that a breach of natural justice occurred in the making of that award.

The decision also points to the importance of setting out the grounds for a claim in the originating process, as such grounds will form the parameters of the case if it is subsequently litigated.

Overall, the court’s decision in this case confirms that Australian courts will be reluctant to set aside an arbitration award on public policy grounds unless the court finds that fundamental norms of justice and fairness have been breached in the making of the award.