In a recent decision, the Federal Court of Australia1 considered whether an arbitration award was in conflict with or contrary to Australian public policy and whether or not that award breached rules of natural justice. It offers both an interesting examination of the grounds for such a challenge and an insight into the difficulties of establishing those grounds so as to make a challenge successfully.

Emerald Grain contracted to sell to Agrocorp Australian, canola in bulk for delivery to Bangladesh. Agrocorp brought claims in arbitration against Emerald for demurrage, deadfreight and loss of profits, as a result of short shipment of the cargo. The Tribunal found substantially in Agrocorp’s favour.

Emerald sought to set aside the award. They relied upon Article 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration, which provides that an arbitral award may be set aside by a court if the court finds that the award is “in conflict with the public policy” of, relevantly, Australia. Under Section 19 of the International Arbitration Act 1974 (Cth), an award is in conflict with or contrary to the public policy of Australia within the meaning of Article 34 if, amongst other matters, a breach of the rules of natural justice has occurred in connection with the making of the award.

Emerald contended that the award was in breach of the rules of natural justice, because there was no evidence of probative value before the Tribunal to permit it to make certain findings (the “no evidence” claims) and also because the Tribunal made those findings based on its own opinions and ideas, without having given Emerald adequate notice (the “no hearing” claims).

The Court had to draw a distinction between on the one hand, an attempt by a dissatisfied party to challenge a tribunal’s findings of fact dressed up as a challenge on the grounds of a breach of the rules of natural justice with, on the other, an application to determine whether in finding the facts (correctly or incorrectly), the Tribunal did so in breach of the rules of natural justice.

Establishing a breach of the rules of natural justice of this sort requires the most precise identification of:

  • What is challenged.
  • The basis for that challenge.
  • Whether the claim for breach is legitimate and not merely a complaint that:
    • the facts were found incorrectly;
    • or the losing party’s submissions were rejected;
    • or the facts or the losing party’s submissions were not accepted as the losing party had wished.

In short, in order to succeed, Emerald’s challenge had to be firmly based upon the “no evidence” and “no hearing” rules.

“No evidence”

It was common ground both that a finding made by a tribunal in the absence of evidence or on evidence which was “incapable of supporting the finding” was an error of law, and that an error of law will arise in circumstances where a fact is found where there is no relevant and probative material capable of supporting it, or an inference is drawn from a particular fact which is not reasonably capable of supporting the inference.3

However, a breach of the “no evidence” rule was not established by showing errors in the facts found by the tribunal4. Consequently, the task for the Court was to determine whether the facts found had any foundation on either the evidence before the Tribunal or permissible inferences from that evidence. Rather than determining that the facts were found correctly, the Court had to ensure that it was open to the Tribunal to find the facts upon the material that was before them.

The Court considered 15 matters said by Emerald to have been found by the Tribunal in breach of the “no evidence” rule and rejected each of them, deciding that:

  • Either, there was evidence before the Tribunal upon which the findings of fact had been made; or
  • That the finding by the Tribunal was not without evidence just because there was other evidence tending to suggest a different conclusion or which might have justified a different finding; or
  • That the finding was capable of being made by the Tribunal on the evidence before it.

The Court had regard to the principles set out in Trustees of Rotoaira Forest Trust v Attorney Genera5, in particular, that it is “the overriding task of a party to show that a reasonable litigant in his shoes would not have foreseen the possibility of reasoning of the type revealed in the award and that with adequate notice it might have been possible to persuade the arbitrator to a different result”.

The Court therefore had to decide whether Emerald could show that as a reasonable litigant, it would not have foreseen the possibility of the Tribunal’s reasoning and that with adequate notice, it might have been able to persuade the Tribunal otherwise. The Court found that Emerald’s evidence fell short and the challenge on the “no hearing” ground therefore failed.

Emerald’s application to set aside the award was refused on both grounds. The decision serves as a reminder that in order successfully to challenge an award for breach of natural justice, an applicant must take care to ensure that the grounds on which it relies are truly met.