Sufficiency of Reasons in Arbitration Awards

• Author: Geoff Farnsworth
• Position: Principal and National Head of Transport and Commodities at M+K Lawyers. He was assisted in the preparation of this paper by Natalie Puchalka, solicitor at M+K Lawyers. This paper was presented at the 2011 Fall Meeting of The Maritime Law Associations of the United States, Canada and Australia & New Zealand in Hawaii on 2-5 December 2011
• Pages: 69-79

(2012) 26 A&NZ Mar LJ

SUFFICIENCY OF REASONS IN ARBITRATION AWARDS

Ge off Fa rnswo rth*

Intro duction

The advantages of arbitration are well known. The parties to arbitration are entitled to expect the ir dispute

to be resolved quic kly, cheaply and privat ely. They want an ‘answer’ (preferably final) from the

arbitrator/s. The existence of efficient, reliable and enforceable dispute resolution mechanisms is

fundamental to the development and promotion of international and domestic trade.

Arbitration has long been an alternative to d omestic court-based litigation. Indeed, arbitration may be

preferable to litigation so far as it concerns international co mmercial disputes, given the New York

Convention1

facilitates the international enforcement of arbitration awards above judgments in many

jurisdictions. But there is a conflict at the hea rt of arbitration; to what extent should the parties be free to

make their own arbitration ‘bargain’, even if it is a bad one, and to what extent should domestic courts

have a supervisor y jurisdiction? At the extreme of the for mer lies the risk of inconsistent and capricious

decision making; of the latter the prospect of protracted and costly procedures and layers of appeals.

Australian policy makers appear to favo ur the former, ‘lai ssez faire’, p osition; at a policy level it makes

sense to encourage commercial parties to resolve disputes on a true ‘user pays’ basis, outside the

taxpayer-subsidised court sys tems, according to a mechanism of their own design (or at least mutually

adopted). Commercial Darwinism will weed-out incompetent arbitrators. Courts t hen have a significa nt

role in enforcing that p olicy by holding parties to their bargain.

Some court s however have trouble ‘letting go’, a nd focus on the natural justice and fai rness consideration

that ‘tho se charged with making a bind ing decision affecting t he rights and obligation o f others should

explain the reasons for making that decision’2

with little if any distinction between the function of judges

and arbitrators. Another polic y consideration favouring i ntervention is the questio n of whether the

jurisdiction of the courts to develop commercial law should be restricted by the ‘complete insulation’ of

commercial arbitration.

In circumstances therefore where the parties to a commercial agreement have expressly chosen to take

disputes away fro m the jurisdiction of national courts, when sho uld those same national cour ts have

supervisory jurisdiction over the conduct of the arb itration? An essential product of the arbitration is the

award itself. But what is required of an award and specifically how detailed need the reasons be? This

question is central to the arbitration process, directly affecting qualifications required of the arbitrator; the

time and costs associated with the arbitration, and possibly even the enforceability of the award itself.

This paper will consider recent judgments which have considered the adequacy of reasons disclosed in

arbitration awards, and what impact they might have on the conduct of commercial arbitration, both

domestic and international.

The Le gislation

The Australian legislati ve regime applying to arbitration is changing. For Constitutional r easons,

international arbitration has long been regulated at the Federal level, while domestic arbitration has been

the domain of the States.

While both domestic and international arbitra tion is now largely based on the UNCITRAL Model Law on

International Commercial Arbitration 2006 (see for example the Commercial Arbitration Act 2010

(NSW), and the International Arbitration Act 1974 (Cth)) prior to 2010 domestic arbitration in particular

* Principal and National Head of Transport and Commodities at M+K Lawyers. He was assisted in the preparation of this paper by

Natalie Puchalka, solicitor at M+K Lawyers. This paper was presented at the 2011 Fall Meeting of The Maritime Law Associations

of the United States, Canada and Australia & New Zealand in Hawaii on 2-5 December 2011 .

1 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 38

(entered into force 24 June 1975).

2 Oil Basins Ltd v BHP Billiton Ltd & Ors [2007] VSCA 255, 51 (‘Oil Basins’).

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