Webster, P. 2012 IAMA Journal - May - 31(1)

thearbitrator

&

mediator

Volume 31 Number 1 May 2012

The Arbitrator & Mediator

This issue may be cited as(2012) 31 (1)

ISSN 1446-0548

General Editor: Russell Thirgood

Peer Review Panel: Professor Dale Bagshaw, AA de Fina OAM, George Golvan QC, Ian Hanger QC, Laurie James, Henry Jolson QC, Doug Jones AM, Philip Kennon QC, Associate Professor Angela O’Brien, John Sharkey AM, Robert Hunt, Russell Thirgood

Journal Sub- Committee: Beth Fiedler (Chair), Beth Cubbitt, Russell Thirgood

Editorial Office: The Institute of Arbitrators & Mediators Australia Level 9, 52 Phillip Street, Sydney NSW 2000 Australia P: (02) 9241 1188, F: (02) 9252 2911 Email: [email protected]

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Disclaimer: Views expressed by contributors are not necessarily endorsed by theInstitute. No responsibility is accepted by the Institute, the editors orthe printers for the accuracy of information contained in the text andadvertisements.

The Arbitrator & Mediator is included on the Australian Government DEST Register of RefereedJournals.

© 2011 The Institute of Arbitrators & Mediators Australia

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THE ARBITRATOR & MEDIATOR MAY 2012

QueenslandLevel 23127 Creek StreetBrisbane Qld 4000Chair:

Khory McCormickAdministrator:

Alison MahoneyP: (07) 3220 2122F: (07) 3220 2133E: [email protected]

VictoriaLevel 13200 Queen StreetMelbourne Vic 3000Chair:

Jim Cyngler OAMAdministrator:

Isaac InocencioP: (03) 8648 5478F: (03) 8648 6480E: [email protected]

Western AustraliaP.O. Box 208Beechboro WA 6063Chair:

Kim DohertyAdministrator:

Helen GoddardP: (08) 6278 2022F: (08) 6278 2033E: [email protected]

New South WalesLevel 952 Phillip StreetSydney NSW 2000Chair:

Steven GoldsteinAdministrator:

Ros HunterP: (02) 9241 1188F: (02) 9252 2911E: [email protected]

TasmaniaPO Box 3076Launceston TAS 7250Chair:

Phillip ConnorsP: (03) 6332 3700F: (03) 6332 3720E: [email protected]

Northern TerritoryC/- Minter EllisonP.O. Box 1134Darwin NT 0801Secretary:

Simon (Cris) CuretonP: (08) 8901 5900F: (08) 8901 5901

Australian Capital TerritoryP.O. Box 5013Kingston ACT 2604Chair:

Rosemary DupontAdministrator:

Sue BarkerP: (02) 6260 7117F: (02) 6249 8374E: [email protected]

South Australia213 Greenhill RoadEastwood SA 5063Chair:

Symoane MecurioAdministrator:

Georgia LloydP: (08) 8274 3765F: (08) 8373 1852E: [email protected]

National FunctionsCEO: Beth FiedlerE: [email protected]

Accounts and Trust Officer:Sharyn JacksonE: [email protected]

Membership Office: Lisa MaltbyE: [email protected]

The Institute of Arbitrators & Mediators Australia

Registered Office

Level 9, 52 Phillip StreetSydney NSW 2000P: (02) 9241 1188W: www.iama.org.au

E: [email protected]

Chapter Offices and Contact Details

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President:Rowena McNally, LLB, FIAMA, Grade 2 Arbitrator, Adjudicator, Mediator

Senior Vice President:Neil Turner AM, RFD, BE, MEngSc, MConstLaw, FIEAust, MIAMA, CPEngGrade 2 Arbitrator, Adjudicator, Expert Determiner, Mediator

Vice President:Alysoun Boyle, BA, MIAMA, AIJA, AAAS, Mediator

Hon Treasurer:Paul Bartley FPNA, ANZIIF, GAICD, MIMC, Grad Dip ICSA, AIAMA, CertIVTAA, AFAIM

Immediate Past President:Warren Fischer, BE (Civil), RPEQ, FIAMA, FAICD, Grade 1 Arbitrator, Adjudicator, Mediator

Councillors:Scott Ellis, B Juris, LLB, LLM, Dip Int Comm ARB, MIAMA, FCIArbNorman Fisher, MIAMA, FAIQS, MRICSBrian Naylor, MIAMA, FCIOB, MRICSGraeme Robinson, B. Eng, MBA, M. Arch Sci, M. Constn, Law, FIE Aust, M. Ausimm, MIAMA, Arbitrator, Adjudicator, MediatorRosemary Dupont, Cert Welfare Studies (Hons), BA (Politics), Cert IV TAA, MIAMA, MAICD, Grade 3 Arbitrator, MediatorHildegard Lovegrove, MEd (Calgary, Canada);PhD (Bradford, UK), Grad Dip Family Law (Monash,Australia); MIAMA.Russell Thirgood, BA, LLB (Hons), LLM (Hons), MIMA

Honorary Fellows:Hon Mr Justice John Batt, BA (Hons), LLB (Hons)Hon Mr Justice David Byrne, BA, LLB (Hons)The Hon Ian Callinan, AC QC, Hon LLD (Queensland), Hon D University (Griffith)Hon Christopher Legoe, QCHon Barry SJ O’Keefe, AM, QCHon Mr Justice William Ormiston, LLB (Hons)Hon Andrew Rogers, QCHis Honour Judge Frank J Shelton, BA, LLBRt Hon Sir Ninian Stephen, AK, GCMG, GCVO, KBE, KStJ, Hon LLD (Sydney & Melbourne)Hon Sir Laurence Street, AC, KCMG, KStJ, Hon LLD, (Macquarie, Sydney & UTS), LLB (Hons)

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Contents

Office Bearers and Honorary Fellows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii

President’s Message Rowena McNally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi

Editor’s Commentary Russell Thirgood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .viii

Articles

Decision Making in ADR: Science, Sense and Sensibility Tania Sourdin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Understanding the Paramount Object in the Context of Party Autonomy Michael JF Sweeney . . . . . . . . . . . . . . . . . . . . . . .15

Saving Time and Cost in Major Arbitration Ian Nosworthy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Arbitration Law in Victoria Comes of Age Albert Monichino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Selecting a Workplace ADR Process: Three Australian Case Studies Dr Penny Webster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Public Policy and Arbitration in Australia AA de Fina OAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77

Enforceability off Online Consumer Arbitration Clauses in the Context of the Australian Competition and Consumer Act Chinthaka Liyanage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97

Case Notes

Sugar Australia Pty Limited v Mackay Sugar Ltd Khory McCormick and I-Ching Tseng . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111

Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2) Brent Turnbull . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117

Notes for Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

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President’s MessageRowena McNally National President

This edition of The Arbitrator and Mediator contains a number of articles and case notes written bysome of our leading ADR professionals, academics and prominent members of the ADR community.We are proud to bring this edition to you.

Readers of The Arbitrator and Mediator will have observed that since it was launched in 1981, theJournal has developed and maintained its authority as a learned publication.

This reflects the talents and diligence of our Editor, Russell Thirgood, and the Journal Committee and Iwish to thank them for all of their good work and efforts over the year.

At the annual general meeting held on 19 May 2012, I was once again voted in as National President. Iam honoured to have this opportunity to serve for a further two years.

During the past twelve months, a review has been undertaken of our national committee structure witha new structure being put in place. This structure will see our services formally being delivered throughthree separate streams:

• Determinative Stream – dispute resolution services provided by arbitrators and adjudicators andother forms of decision-making services in the ADR context

• Facilitative Stream – which will focus on mediation, facilitation and other more facilitative ADRprocesses;

• Preventative Stream – services such as probity advice and Dispute Resolution Boards.

Finally, I thank our National Councillors, Chapter Chairs and Chapter Committee members, past andpresent, for their contributions. I also thank our hardworking administrative staff at National Office andour Chapter Offices who have made such a valuable contribution to promoting the Institute as a nationalorganisation.

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Editor’s CommentaryRussell Thirgood, Editor

Welcome to the May 2012 edition of the Arbitrator and Mediator.

Our first contribution this issue is from Professor Tania Sourdin, the author of Alternative DisputeResolutionwhich is now in its fourth edition. She examines the science behind decision making, lookingat factors many of us would not even consider, such as when and what a person had eaten, the time ofday and how many other decisions a person has made that day. More importantly, and very usefully,Professor Sourdin provides us with useful frameworks, such as a four-step process to reduce or eliminateemotional bias. As arbitrators, adjudicators and experts we strive for excellence in decision making.Understanding how our brains work in that process can be invaluable.

Michael Sweeney’s article focuses on the Victorian Commercial Arbitration Act 2011. Victoria like otherjurisdictions has modernised its arbitration legislation. Like the Acts enacted in the mid 1980s, theseupdated Acts (except for Queensland, the ACT and Western Australia) are uniform. In Western Australiait is anticipated that the Commercial Arbitration Bill 2011 will soon receive assent – leaving Queenslandand the ACT as the only jurisdictions still using the old Acts. Michael explores an understanding of theparamount object of the Act in the context of party autonomy. The article has significance beyond theAct. The paramount object in s1AC of the Victorian Act – to facilitate fair and final resolution of disputeswithout unnecessary delay or expense – is fundamental to all mediation and arbitration. This articleoffers a useful case study in how the underpinning rationale is carried through to practical application.

One of the most significant motivating factors behind electing to undertake arbitration is the savings intime and cost. For domestic arbitration to prosper in Australia it must be more competitive than otherforms of final dispute resolution. To that end, Ian Nosworthy has contributed an article on howpractitioners can make arbitration more efficient. Even though Ian’s article is very practical, providinguseful, easy to remember advice – such as reducing everything to writing which can be reduced to writing– he does not neglect to delve into the jurisprudential basis of his ideas.

A must read for arbitration practitioners, Albert Monichino SC has contributed a timely assessment ofthe new Commercial Arbitration Act 2011 (Vic) which replaces the old 1984 Act and as noted aboveforms part of a suite of modern uniform arbitration acts across the country (except for Queensland, theACT and for the time being, Western Australia). Albert puts the new Act in its context, that of a increasingmodernisation and harmonisation of Australia’s international and domestic arbitration law. He also

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examines the rationale of the updated laws – apart from the inherent benefits for Australian litigants,they will make Australia more attractive as an alternative dispute resolution hub in the Asia-Pacificregion. President Rowena McNally and the IAMA Council look forward to working with the newQueensland government so that Queenslanders might also benefit from modernisation and harmonisationof its arbitration laws.

Dr. Penny Webster has contributed a paper on selecting a workplace ADR process. She provides us withthree Australian case studies, from diverse organisations. The case studies revealed that managers had arelatively unsophisticated level of understanding of the nature of conflict, ADR process that could assistin their workplaces and their potential applications. Dr. Webster also provides some usefulrecommendations arising from her case studies to help shift institutional cultures toward embracinginternal ADR regimes.

AA de Fina AO gives us an in-depth analysis of the interrelation of public policy and arbitration inAustralia. He delves into the rationale behind legislation enacted to regulate and support arbitration andgrounds the concepts in concrete examples. I particularly recommend this article to readers who practicein or are interested in intellectual property, as there is an examination of arbitration as a dispute resolutionmechanism in IP disputes.

Chinthaka Liyange has given us an analysis of the enforceability of online consumer arbitration clausesin the context of the Competition and Consumer Act 2010 (Cth). Given the proliferation of onlinetransactions between business and consumers and the relatively new legislation regulating them, this isa timely and interesting contribution. Chinthaka highlights problems with the Act and the vagueness ofthe scope of standard form contracts. A working understanding of those problems is vital, because asChinthaka points out, the courts are an inappropriate avenue of redress for business to consumer e-commerce disputes. I suspect that this is an entire body of work that will develop and mature with time.

Queensland Chapter Chairman Khory McCormick and I-Ching Tseng provide us with the first of twocase notes in this issue. In Sugar Australia Pty Limited v Mackay Sugar Ltd, the Supreme Court ofQueensland found that it amounted to misconduct for an arbitrator to not give the applicant anopportunity to address a point not raised by the parties in their Points of Contention.

In the second case note, Brent Turnball looks at Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No2). The case dealt with the enforcement of an international arbitration award in Australia. Brent takestwo main points from the case. The first is that Australian courts follow the American example byallowing international arbitration awards to be enforced unless they offend the principles underliningthe core of ‘morals and justice in Australia.’ The second point was that parties should ensure that theseat of arbitration should be consistent with where the parties have assets against which execution canbe levied. I note that I am acting for one of the parties in these proceedings and I may, subject toconfidentiality restraints, be able to provide readers with further insights as this case progresses throughthe Federal Court to a final hearing.

I recommend these articles to readers and thank all of the contributors for their hard work.



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Decision Making in ADR: Science, Sense

and Sensibility Tania Sourdin1

Abstract

Research about how we make decisions reveals that our decision-making is influenced by many factors.We are conscious of some of these factors and unconscious of others. Some theorists suggest that theprocessor of the brain is divided into two distinct systems that dictate how we think and make decisions.One system is fast, intuitive, reactive, emotional and often unconscious. The other system is slow,deliberate, methodical, rational and conscious.2 Other writers and theorists also suggest that the processof decision-making is a combination of feeling and reason.3 While some theorists have talked about amodularity, or specialisation, of brain function by area with particular reference to right-brain and left-brain thinking, these approaches remain under investigation. Some past work suggests that cognitive orother processes can be ‘lateralised' in parts of the brain and that conditions such as depression arelinked to a hyperactive right hemisphere, with particular parts of the brain more likely to be involved in‘… processing negative emotions, pessimistic thoughts and unconstructive thinking styles’, and arelatively hypoactive left hemisphere ‘specifically involved in processing pleasurable experiences’ and‘relatively more involved in decision-making processes.4 This paper explores the way in which the brainworks and the making of decisions in Alternative Dispute Resolution (ADR) from a neurobiological andneuroscience perspective by reference to some of these theories. It also considers emerging theory inthe decision-making area in the context of factors that can lead decision-makers in arbitral and advisoryprocesses astray.

Introduction

The logical stages involved in determinative and advisory ADR decision-making include the rationalgathering, analysing and considering of information, and the making and communicating of a decision.However, some of what takes place in advisory and determinative decision-making is not rational, logicalor neatly divided into stages. The emphasis, approach and understanding applied to the determinative oradvisory decision-making process by the parties, their representatives (if present) and the decision-makeras well as variations in the involvement and skills of all these players will determine the outcomes ofthe dispute resolution process. For example, at the most basic level, in gathering information, theprocesses used can vary according to the circumstances and can involve a decision-maker adopting afacilitative stance and using many of the techniques of introduction, understanding and questioning that

1 Professor of Law, Monash University; Director, Australian Centre for Court and Justice System Innovation (ACCJSI).Parts of this paper are drawn from T Sourdin, Alternative Dispute Resolution 4th ed (2012, Thomson Reuters, Australia)with kind permission. The author also gratefully acknowledges the assistance of Sarah Russell who assisted with editingof draft papers. Contact the author at [email protected]

2. D Kahneman, Thinking Fast and Slow (2011, Farrar, Straus and Giroux, New York).3 J Lehrer, How We Decide (2009, Houghton Mifflin Harcourt, New York).4 D Hecht, ‘Depression and the hyperactive right-hemisphere’ October 2010, Neurosci. Res. 68 (2): 77–87.


are more common in mediation processes and thus influencing outcomes by enlarging the material tobe gathered, reflected upon and even considered.

However, in most introductory stages of arbitral processes, there will generally be a greater focus on thetechnical requirements, such as the available review processes, onus of proof and legislative requirementsthan in other forms of decision-making for example decision-making in a management context. Theremay also be reference to the way that written material is to be used as well an explanation of bias andnatural justice approaches. But this framework will not import a Vulcan-like response in the arbitratordealing with a dispute, and numerous commentators have remarked that accepting that a predominantlyrationalist approach exists in respect of determinative forms of decision-making is flawed in light of theever-expanding literature and research relating to neuroscience and cognitive perspectives.5

In determinative processes, the information-gathering stage can be protracted and have as its focus thedetermination of rights rather than interests (or some other matter). Indeed in relation to judicialprocesses, many experienced judges indicate that in complex matters the information-gathering stagethat occurs prior to any actual hearing process is essential in terms of managing process and assisting toensure that outcomes are determined promptly.6 However, no matter what information is being gathered,the neurobiology of the decision-maker helps to sort, store, omit, rank and at times distort information.In the later stages of determinative decision-making, both the brain and the body continue to influencehow material is analysed, considered and determined. The stages are not linear in that we constantlygather, sort and analyse; however, in most determinative decision-making that is rooted in the adversarialsystem, the final analytical stages may occur some time after the ‘in court’ or ‘in arbitration’ gatheringand sorting stages have taken place.

Gathering and Sorting

To ensure that decision-makers consider the relevant material required to make a complex decision,decision-makers, advocates and parties ask questions at each stage of a determinative hearing process.Within the formal litigation system, some aspects of the information-gathering process may be governedby practice and procedure as well as rules of evidence. In arbitration, there is more scope to vary theinformation-gathering process. This is specifically mandated in more recent arbitral legislation (discussedin more detail below). However, it is increasingly the case that even within the litigation system judgesare varying the way in which they gather information.7

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5 See J Drobak and D North, ‘Understanding … Judicial Decision Making: The Importance of Constraints on Non-RationalDeliberations’, 26 Journal of Law and Policy (2008) 131 at p 132. The cognitive revolution is said to have taken placeover the past 30 years: ‘today the study of cognition dominates psychology in the same way that the study of behaviourdominated the middle of the twentieth century’ at p 17. See L Burton, D Westen and R Kowalski, Psychology, 3rd ed(Australian and New Zealand ed, Wiley, Queensland, 2012).

6 Justice N Owen, Dispute Resolution: Idle Musings on the Eristic, Exitispicy and the Exegesis, Conference Paper(presented at the Institute of Arbitrators and Mediators National Conference, Western Australia, 12 April 2008).

7 See, for example, the growth in less adversarial trial (LAT) processes in the family area: Family Court of Australia, LessAdversarial Trial Handbook (Attorney-General’s Department (Cth), 2009), available on<http://www.familycourt.gov.au/wps/wcm/connect/FCOA/home/about/publications/Papers/Papers+and+Reports/LAT>(accessed 8 May 2012).


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Within the judicial context, most decision-making has been considered by judges from the perspectiveof the analysis of material, and there are a few significant cases that guide judges in terms of theirdecision-making. The leading Australian case in this area is Markarian v R,8 which considered whetheror not judges making sentencing decisions should use an instinctive approach. Justice McHugh referredto two main approaches to decision-making in sentencing as follows:

By two-tier sentencing, I mean the method of sentencing by which a judge firstdetermines a sentence by reference to the “objective circumstances” of the case. This isthe first tier of the process. The judge then increases or reduces this hypothetical sentenceincrementally or decrementally by reference to other factors, usually, but not always,personal to the accused. This is the second tier. By instinctive synthesis, I mean themethod of sentencing by which the judge identifies all the factors that are relevant tothe sentence, discusses their significance and then makes a value judgment as to whatis the appropriate sentence given all the factors of the case. Only at the end of the processdoes the judge determine the sentence.

The two-tier sentencer contends that using the instinctive synthesis is inimical to thejudicial process and is an exercise of arbitrary judicial power, unchecked by the givingof reasons. …9

This form of decision-making was supported by the majority of the High Court, although the majorityin R v Markarian rejected the notion that instinctive synthesis means that judges do not have to givetransparent reasons. Some commentators have suggested that the High Court decision in Markarian v Rmeans that:

… from a neurobiological perspective, the court’s preferred consciously considered andarticulated methods of sentencing decision-making are those most likely to result inrational and well reasoned, yet humane, sentences. All information is initially sortedand prioritised at an unconscious level, a process of sorting reliant upon attachingemotional significance to information on the basis of the previous experience of thejudge. Without this ranking system, the brain would become overloaded withindistinguishable information. … Once this prioritising has taken place, however, thejudge is able to consider the individual case in the context of all relevant legal, social,and personal considerations. Irrelevancies may be excluded and feelings and emotionalreactions scrutinised for appropriateness. 10

8 Markarian v R [2005] HCA 25.9 Markarian v R [2005] HCA 25 at [51]–[52].10 H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion: How Can the Human Brain Make

Sentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 90, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012).


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Despite the emphasis placed on instinctive synthesis by the High Court in Markarian v R, it is clear thatthe court considered that this process involves an intuitive and careful sorting of all of the relevant factors.This intuitive sorting requires a high level of awareness of self and others and raises issues about howunwanted influences can be resisted.

There are many matters that can influence the effectiveness of the information-gathering stage indecision-making. It is clear that the way in which the human brain works can influence decision-making,and the structure and processes of the brain are influenced by a person’s innate characteristics and theirenvironment. It may be, for example, that someone with less well-developed orbitobasal/ventromedialareas of the brain may find it difficult to choose between alternatives or make a decision wheninformation is incomplete (see below). This could mean, for example, that some of us are less likely tobe successful in a decision-making environment or may find it more difficult to gather information(essentially, they may find it hard to stop the information-gathering process).

In addition, decision-making can be influenced by factors that may not only be related to brain structure.For example, the following factors can impact upon information-gathering as well as the overall decision-making process:

• when and what a person has eaten;11

• the time of day;12

• how many other decisions a person has made that day (decision fatigue);13

• personal values;14

• unconscious assumptions;15

• reliance on intuition;16

• the attractiveness of the individuals involved;17

11 See J Tierney, ‘Do You Suffer From Decision Fatigue?’, New York Times, 17 August 2011, available on<http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=2&pagewanted=1>(accessed 8 May 2012), referring to a study of parole board decision-making reported in S Danziger, J Levav, LAvnaim–Pesso. ‘Extraneous Factors in Judicial Decisions’, Proceedings of the National Academy of Sciences of USA,Vol 108 no 17 6889-6892, 26 April 2011.

12 See J Tierney, ‘Do You Suffer From Decision Fatigue?’, New York Times, 17 August 2011, available on<http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=2&pagewanted=1>(accessed 8 May 2012).

13 See J Tierney, ‘Do You Suffer From Decision Fatigue?’, New York Times, 17 August 2011, available on<http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=2&pagewanted=1>(accessed 8 May 2012).

14 R Chisholm, ‘Values and Assumptions in Judicial Decisions’, Unpublished Paper, National Judicial College Conference,Judicial Reasoning – Art or Science 2009: seehttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm>(accessed 8 May 2012).

15 K Mason, ‘Unconscious Judicial Prejudice’ (2001) 75 The Australian Law Journal 676 at 680.16 M Kirby AC CMG, ‘Judging: Reflections on the Moment of Decision’ (1999) 18 Australian Bar Review 4 at 4.17 M Agthe, M Sporrle and J Maner, ‘Does Being Attractive Always Help? Positive and Negative Effects of Attractiveness

on Social Decision Making’ (2011) 37 Personality and Social Psychology Bulletin 1042. The researchers in this areasuggest that there may be a bias away from attractive same sex individuals and a bias towards attractive other sexindividuals.


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• emotion. 18

The extent to which these factors influence determinative decision makers such as arbitrators is unknown,but it is likely that even if we become aware of these factors, we are likely to underestimate their impact.19

This is partly because we are more likely to exaggerate information about our own personal qualitiesthat we perceive as positive and less likely to accept information that raises any questions about ourpositive characteristics.20

In the arbitral area, recent legislative changes mandate more arbitral control over the information-gathering phase. For example, under s 17(3)(g) of the Commercial Arbitration Act 2010 (NSW), anarbitrator may take a number of measures to manage the arbitration including ‘dividing, recording andstrictly enforcing the time allocated for a hearing between the parties (a ‘stop clock’ arbitration)’. Thischange and the wider powers that arbitrators now have mean that it is even more important for arbitratorsto consider factors that may unconsciously impact upon their information-gathering.

Sorting Information

In arbitral and judicial decision-making (unlike some other areas of complex decision-making), it isunusual for information to be gathered and sorted using a team problem-solving approach. It is thereforeless likely that decision-makers will be challenged to perceive the information in a different manner orfrom a different perspective from their own. While advocates may attempt to persuade a judge orarbitrator (with varying degrees of success), it is rare for any form of distributed decision-making totake place. Essentially, the determinative decision-maker must choose one preferred approach and eachadvocate will advocate for their own approach. The determinative decision-maker is ‘helped’ to make adecision, but the options or potential outcomes are expressed in polarities.

This approach has important consequences in decision-making. For example, according to one theory,a decision-maker could (particularly if rapid decision-making is required) adopt an approach of ‘takethe best, ignore the rest’.21 This means that a decision-maker weighs information quickly, makes a yes/nojudgment and ‘… if that works, they stop and assume their inference is good enough.’22 The adoption ofthis type of inferential approach may mean that information is not necessarily weighed as carefully as itmight be with other more team-based approaches to decision-making.

18 H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion: How Can the Human Brain MakeSentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 84–86, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012).

19 T Wilson and D Gilbert (2008) ‘Explaining away: A model of affective adaptation’. Perspectives on PsychologicalScience, 3, 370–386.

20 For an interesting discussion of this phenomenon, see D Brooks, The Social Animal (2011, Random House, New York) atp 220.

21 L Burton, D Westen and R Kowalski, Psychology, 3rd ed (Australian and New Zealand ed, Wiley, Queensland, 2012) at313, referring to G Gigerenzer and DG Goldstein, ‘Reasoning the Fast and Frugal Way: Models of Bounded Rationality’,Psychological Review (Vol. 103, No. 4, 1996), 650–669.

22 L Burton, D Westen and R Kowalski, Psychology, 3rd ed (Australian and New Zealand ed, Wiley, Queensland, 2012) at313.


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There may be ways in which the information-gathering and sorting stages can better supportdeterminative decision-makers in their analysis. For example, concurrent evidence processes can assistin decision-making in judicial as well as ADR determinative and advisory processes. Justice McClellan,Chief Judge at Common Law of the New South Wales Supreme Court, has described the impact thatconcurrent evidence processes can have on the information-gathering stage, suggesting that theseprocesses may reduce levels of tension in some circumstances. His Honour said that when these processesare used:

Within a short time of the discussion commencing, you can feel the release of the tensionwhich normally infects the evidence-gathering process. Those who might normally beshy or diffident are able to relax and contribute fully to the discussion. 23

This approach assumes that decision-making will not involve perfect information or rationality and thatthe behaviour of those involved in the process can be improved by using group decisional processes insome circumstances. Such processes may be helpful not only in the gathering and analytical stages butalso in the ‘sorting stage.’ In this regard, group or team approaches could be used to discourage a sorting‘bias’ (see below).

One particular and related issue in the sorting stage is how we may ignore, distort or reject informationbecause of conscious and unconscious bias. To prevent bias in the information-gathering and sortingstages, Feigenson and Park suggest a four-step process to reduce or eliminate emotional bias: 24

1. Be aware of the unwanted influence.

2. Be motivated to correct the bias.

3. Be aware of the magnitude and direction of the bias.

4. Be able to adjust the response accordingly.

They also suggest that simply being aware of a person’s accountability for a decision ‘will attenuate theeffect of incidental emotional influence on decision-making’.25 According to Mason, attending to thisbias requires us to ‘expose, debate and contest generalised attitudes so as to appreciate their properinfluence upon judicial decision-making, and to remind all judges of the need to stand outside themselvesand to question their own certainties.’26

23 P McClellan, ‘Concurrent Evidence’, Effectius Newsletter (Issue 14, 2011) p 5, available onhttp://www.effectius.com/publications (accessed 8 May 2012).

24 N Feigenson and J Park, ‘Emotions and Attributions of Legal Responsibility: A Research Review’ (2006) Law and HumanBehaviour (online issue), cited in H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion:How Can the Human Brain Make Sentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 89, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012).

25 H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion: How can the Human Brain MakeSentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 89, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012).

26 Justice Keith Mason, ‘Unconscious Judicial Prejudice’ (2001) 75 The Australian Law Journal 676 at 681.


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Another approach may require a rethinking of systemic approaches (rather than individual approaches)to judging. The material on group decision-making suggests that the impact of belief systems might beminimised if groups, rather than individuals, are involved in sorting at least in complex cases or disputes.This is an interesting notion given that most arbitrators work alone, and even if they work together (forexample, in a panel environment), they may not necessarily share the sorting activity (although they mayshare the writing up of a decision).

One significant and contentious change in the commercial arbitration area is related to the ability ofarbitrators to adopt a ‘med–arb’ model, which may impact upon the processes used to sort informationand therefore the quality of the decisions made. To some commentators, a combined med–arb modelenables disputants to have the ‘best of both worlds’.27 The amendments to the domestic CommercialArbitration Acts created a new section that is not contained in the UNCITRAL Model Law onInternational Commercial Arbitration, which is intended to enable med–arb processes to be used byconsent. The new s 27D has, however, proved to be controversial and there has been considerablediscussion about removing it. An issues paper on this topic prepared by the previous Standing Committeeof Attorneys-General (SCAG) in 201128 has noted:

The consultation model Bill permitted an arbitrator to act as a mediator in proceedingsrelating to a dispute if the arbitration agreement provided for this or both partiesconsented in writing. Mediation is generally a dispute resolution process that involvesthe mediator having separate, private meetings with the parties. Two issues were raisedrelating to this, both concerning the situation where the alternative mechanism fails toresolve the dispute and the arbitration proceedings recommence. Stakeholders raisedconcerns about the potential for abuse of natural justice and the risk of bias.29

SCAG decided to retain the med–arb provision in s 27D, noting that:

Ministers noted that submissions to consultation on section 27D of the modelCommercial Arbitration Bill 2010 expressed different views on the formulation of thesection. Ministers agreed to clarify that consent to an arbitrator resuming arbitrationfollowing mediation should be obtained after the termination of the mediation in theform contained in the NSW Commercial Arbitration Act 2010.30

While the new provision may, on the one hand, increase the likelihood of an abuse of natural justice andincrease the risk of bias, it may on the other hand create a different and potentially more collaborativedecision-making environment – a group decision-making environment. However, the changes alsosupport the need for a more careful review of bias issues.

27 A Limbury, Getting the Best of Both Worlds with Med–arb (September 2010) Law Society Journal 62. 28 SCAG has now transitioned into a new body – the Standing Council on Law and Justice (SCLJ).29 SCAG, Reform of the Uniform Commercial Arbitration Acts – Section 27D Mediation Clause, available on

<http://www.lawlink.nsw.gov.au/lawlink/SCAG/ll_scag.nsf/pages/scag_reform_sec27d_clause> (accessed 31 August2011).

30 Attorney-General for Australia – The Hon Robert McClelland MP, Communiqué: Standing Committee of Attorneys-General (SCAG decision of 21–22 July 2011), available on <http://pandora.nla.gov.au/pan/21248/20110723-0001/www.attorneygeneral.gov.au/www/ministers/mcclelland.nsf/Page/MediaReleases_2011_ThirdQuarter_21-22July-Communique-StandingCommitteeofAttorneys-General.html> (accessed 8 May 2012).


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Neurobiology and Decision-making

Clearly, decision-making is a complex process. Recent research on neurobiology and neuro-awarenesssuggests that information-gathering and decision-making are likely to be governed by different parts ofthe brain and may be influenced by factors that are neither rational nor logical. Using a conceptual modelof brain function, it seems that many different brain areas are involved in decision-making (summarisedbelow in tabular form and partly taken from Bennett and Broe)31 and in the information-gathering stage.

We constantly sort, ignore and add information before analysing, and our analytical processes are alsoindividual and linked to our individual brain structure and processes. An injury to one part of the brainor alcohol and substance abuse can have more impact on some regions than others. In addition, as mostcognitive processes occur simultaneously, if brain connectivity is harmed, overall brain function may bereduced. Considering these activities from a brain specialisation perspective, the areas of the braininvolved in the decisional processes are set out below:

Table 1. Decision-making and the Brain

Brain Area Function

Prefrontal regions, particularly Enable humans to make multi-attribute decisions based on explicitorbitobasal/ventromedial and deliberation and integration of information from a wide range ofdorsolateral cortices sources.32

Limbic system Integral to neurological decision-making

Amygdala (part of limbic system) Essential to processing emotion33

Ventromedial region Associated with ability to see future consequences of decision-making and also with instinctive and non-conscious decision-making.

Dorsolateral cortex (DLC) Involved in working memory, thus plays a key role in:• reasoning and deliberating • making complex decisions from multiple sources of information• comparing alternatives• integrating input from previously learned and stored knowledgetogether with externally derived information.

Ventromedial cortex (VMC) Involved with processing emotion and feelings and the relationshipof those states to reason and decision-making. Particularly involvedin processing stimuli that have a personal, social or moral focus, tothe extent that the VMC can associate incoming stimuli withappropriate emotional reactions and feelings.


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One theory is that the VMC automatically activates previously learned informationwhenever a person is presented with a situation similar to a previous experience, andalso activates the emotional disposition associated with the experience. This allowsactivated facts to be recalled together with feelings and can be either conscious orunconscious. When unconscious, the emotional association can act as a biasing element.This process facilitates logical reasoning by allowing certain outcomes to be rapidlyassessed and rejected, also allowing relevant and selected information to be available forfurther higher level processing by the DLC. According to Damasio,34 without thiselement of ‘bias’ (instinctive/gut reaction), people would not be able to make anydecisions at all.

Once the DLC takes over the process of reasoning, the feelings that arose from thesomatic/emotional state are available to cognitive awareness. This allows for deliberaterejection or suppression of a particularly inappropriate ‘emotionally charged’ choice, aslong as attention is given to the fact that it was in conflict with the knowledge of legalrequirements.35

This approach to brain specialisation also supports the notion that the conscious and unconscious brainare intertwined with a simultaneous reaction and response. However, many theorists suggest that theunconscious brain is more powerful than the conscious part as it:

• has a vast implicit memory system;36

• has a higher processing capacity and can absorb data more quickly;37

31 H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion: How Can the Human Brain MakeSentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 84–86, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012).

32 H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion: How Can the Human Brain MakeSentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 84–86, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012), referring to D Krawczyk, ‘Contributions of the Prefrontal Cortex to the Neural Basis of HumanDecision-making’ (2002) 26 Neuroscience and Biobehavioural Reviews 631.

33 H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion: How Can the Human Brain MakeSentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 84–86, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012), referring to R Wiener, B Bornstein and A Voss, ‘Emotion and the Law: A Framework for Inquiry’(2006) (Apr–Jun) Law and Human Behaviour (online issue).

34 H Bennett and GA Broe, ‘Judicial Neurobiology, Markarian Synthesis and Emotion: How Can the Human Brain MakeSentencing Decisions?’ (2007) 31 Criminal Law Journal 75 at 84–86, available onhttp://www.njca.com.au/Professional%20Development/programs%20by%20year/2009/Judic%20reason%20public.htm(accessed 8 May 2012), referring to A Damasio, Descartes’ Error: Emotion, Reason, and the Human Brain (Quill, NewYork, 1984).

35 Table prepared by C Carter, Project Officer, Judicial College of Victoria 2011 as part of a working project into judicialdecision-making education workshop facilitated by the author.

36 See H Roediger, (September 1990). ‘Implicit Memory: Retention without remembering’. American Psychologist 45(9):1043–1056. There are many studies relating to amnesiac patients on this point.

37 See http://www.mind-body.info/mind-body-information/consciousness/> (accessed 8 May 2012) and the referencesnoted.


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• can converse with all parts of the body and undertake complex tasks without thinking (for example,being able to drive a car after learning the task);38

• is better at solving problems with many variables.39

This suggests that in the race to make a decision, the unconscious brain is more likely to dominate or atleast trigger the primary response. However, reason, which is acquired through study and the developmentof reasoning and analytical skills, helps the brain to make ‘good decisions’ that involve more carefulrisk calculation (that the unconscious parts of the brain may not support).

Reasoning

Clearly, brain structures have an impact on the information-gathering and sorting process, but how dothey have an impact on reasoning? To answer this question, it is necessary to consider reasoning processesand how sensibility can conquer sense. Reasoning is generally defined as the processes by which wegenerate and evaluate arguments and beliefs.40 Inductive reasoning enables us to consider and applyunderstandings from specific observations to create general propositions.41 Deductive reasoning is thelogical reasoning that enables us to draw a conclusion from a set of assumptions based on logical rules.Although deductive reasoning suggests that a decision-maker will be logical, there is much research toshow that the content of problems influences how they are solved.42 Another form of reasoning isanalogical reasoning; essentially, we understand a new situation by relating it to a familiar situation.43

When dealing with problem-solving or undertaking a reasoning process, there are some significantbarriers to rational decision-making. These can be described as:

• Functional fixedness – the tendency to rely on data or methodologies that have worked in the pasteven when alternatives may work more effectively.

• Confirmation bias – the tendency to search for confirmation of what is already believed.

• Heuristic systems – essentially cognitive shortcuts where similarity matching is used to infer anoutcome.44

38 P Wolfe, Brain Matters: Translating Research into Classroom Practice 2nd ed (2010, ASCD, Alexandria, VA USA), seeChapter 7.

39 See Dijksterhuis, A, ‘Think Different: The Merits of Unconscious Thought in Preference Development and DecisionMaking’ Journal of Personality and Social Psychology, 2004. 87(5): p. 586–598 quoting Freud: ‘When making a decisionof minor importance, I have always found it advantageous to consider all the pros and cons. In vital matters however . . .the decision should come from the unconscious, from somewhere within ourselves.’ See also Waroquier, L, Marchiori, D,Klein, O, & Cleeremans, A, ‘Is It Better to Think Unconsciously or to Trust Your First Impression? A Reassessment ofUnconscious Thought Theory’. Social Psychological and Personality Science, 2010. 1(2): pp. 111–118.

40 L Burton, D Westen and R Kowalski, Psychology, 3rd ed (Australian and New Zealand ed, Wiley, Queensland, 2012) at 305.41 L Burton, D Westen and R Kowalski, Psychology, 3rd ed (Australian and New Zealand ed, Wiley, Queensland, 2012) at 305.42 L Burton, D Westen and R Kowalski, Psychology, 3rd ed (Australian and New Zealand ed, Wiley, Queensland, 2012) at 306.43 L Burton, D Westen and R Kowalski, Psychology, 3rd ed (Australian and New Zealand ed, Wiley, Queensland, 2012) at 307.44 L Burton, D Westen and R Kowalski, Psychology, 3rd ed (Australian and New Zealand ed, Wiley, Queensland, 2012) at

307–312.


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45 See J Drobak and D North, ‘Understanding … Judicial Decision Making: The Importance of Constraints on Non-RationalDeliberations’, 26 Journal of Law and Policy (2008) 131 at p 145.

46 L Sharp, ‘Cognitive Heuristics and Law: An Interdisciplinary Approach to Better Judicial Decision-Making’ (1995) 20Bulletin of Australian Society of Legal Philosophy 71 at 74.

47 L Sharp, ‘Cognitive Heuristics and Law: An Interdisciplinary Approach to Better Judicial Decision-Making’ (1995) 20Bulletin of Australian Society of Legal Philosophy 71 at 90.

The work on reasoning suggests that reasoning is essentially the struggle between sense and sensibility,the unconscious and the conscious, and that our deductive, analogical reasoning processes must be testedin the decision-making process. The ‘balancing act’ that is reasoned judging assists the conscious brainto assess risk, while the unconscious brain attempts to hijack it by manipulating the information itreceives and sorts. Reasoning requires us to be aware of the ‘spark’45 or intuitive response, and then toquestion it (not justify it) in judicial reasoning.

Personal qualities can impact on ‘decisiveness’ and reasoning capacity. Clearly, a person’s decisivenessand reasoning capacity is not only linked to brain structure and connectivity, but also to other innatefactors and is a product of learned and other experiences. Some people may require a lot of detailedinformation to make a decision, while others may require less. Some discuss the options available withcolleagues or others. Cultural factors in terms of individual and group decision-making might also berelevant in relation to how completely options and alternatives need to be explored and framed. This isimportant as the quality of the decision is a matter that is largely determined by those who are affectedby it. A clearly reasoned and well-thought decision may, for example, be open to criticism or invite anappeal if it is imperfectly or clumsily framed.

Decision-making and Conveying a Decision

There has been some recent work on the ‘framing’ of decisions that reviews how decisions or optionsare expressed. Much of this work has been considered in the context of cognitive heuristics,46 and therehas been limited work in the decisional domain. Sharp described the 1981 study by Tversky andKahneman that demonstrated how normatively inconsequential changes in the statement of a problemdramatically affect preferences and choices.47 Tversky and Kahneman provided two groups of subjectswith the following scenario based on a hypothetical outbreak of a rare disease that was expected to kill600 people: both groups were told that two alternative programs were being considered to deal with theoutbreak and asked which they preferred. The alternatives provided to group 1 were framed as follows:

(a) If program A is adopted, 200 people will be saved; or

(b) If program B is adopted, there is a one-third probability that all will be saved and a two-thirdsprobability that none will be saved.

Of the 158 respondents in group 1, 76 per cent chose program A. In contrast, group 2’s alternatives wereframed as follows:

(a) If program A is adopted, 400 people will die; or

(b) If program B is adopted, there is a one-third probability that no one will die and a two-thirdsprobability that all will die.


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Of the 169 respondents in group 2, only 13 per cent chose program A.48

The work on framing, anchoring and expressing options and outcomes therefore suggests that decision-makers may support greater uptake of options and compliance with decisions if they express outcomesby referring to:

• award rather than loss;

• assessing alternatives and both the positive and negative implications of each.

This work also suggests that good decision-making may also involve ‘good framing’ and a closer analysisof what framing is more likely to support compliance with outcomes. Work on anchoring and heuristicsis also relevant in the broader ADR environment as it suggests that it is more likely that lower or higheroutcomes will be accepted or adopted if the brain is primed to accept them.49 Other work on framingsuggests that information about a process as well as information about options and outcomes will allimpact on compliance with outcomes as well as the outcomes that are reached. This work hasimplications for all forms of dispute resolution and supports the giving of procedural explanationsthroughout an ADR process (this can prime disputants to provide higher quality information) as well asensuring that outcomes are canvassed before the conclusion of the dispute resolution process.50

Future Decision-making

In terms of future decision-making, it is clear that a revolution in technology is taking place, which willhave an impact on judging. Rule-based Artificial Intelligence (AI) approaches have functioned to supportgames, decision-making, word processing, design and many human activities over the past two decades.Judicial decision-making will not be immune from this revolution.

Decision-making can also be supported by technology. Increasingly, AI is used to support decision-making in relation to decisions that require simple options and outcomes (consumer decision-making)and more complex data-mining and team approaches (environmental, medical and social problems).51

AI refers to computer systems that perform tasks and/or solve problems that usually require humanintelligence.52 These processes have emerged over the past 50 years53 and have been directed at technical

48 See D Kahneman and A Tversky, ‘Choices, Values, and Frames’ (1984) 39(4) American Psychologist 341 at 343,available on <http://webs.wofford.edu/pechwj/Choices,%20Values,%20and%20Frames.pdf> (accessed 29 August2011).

49 See J Lehrer – The Frontal Cortex at [http://www.wired.com/wiredscience/frontalcortex] accessed 6 May 2012.50 See D Weitz, ‘The Brains Behind Mediation: Reflections on Neuroscience, Conflict Resolution and Decision-Making’,

2011, V12 No 2 Cardozo Journal of Conflict Resolution at 6–7. Weitz refers to experiments by Bargh, whichdemonstrated that students would be more polite if ‘primed’ and that subtle words used to prime can result in subjectsbehaving differently in a range of ways (see J Bargh, What have we been priming all these years? On the development,mechanisms, and ecology of nonconscious social behavior, V 36 2006, European Journal of Social Psychology, 147-168.)

51 See Kaggle.com (accessed 8 May 2012).52 R Susskind, The Future of Law: Facing the Challenges of Information Technology (Clarendon Press, Oxford, 1996), p

120.53 For a history of the development of AI, see P Gray, Artificial Legal Intelligence (Brookfield, Dartmouth, United Kingdom,

1997), Ch 2.


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as well as legal analysis.54 They have the capacity to be blended with existing adjudicatory or non-adjudicatory processes. However, it is most probable that their benefits will be greatest wheredeterminative and advisory processes are concerned.

Legal information and AI systems can use sophisticated ‘branching’ technology to create elaboratedecision trees that can suggest outcomes to disputes. This is done by a system that emulates humanintelligence. Essentially, what takes place is that the system asks the user a number of questions aboutthe dispute to enable an accurate description of it to be built up. The computer then forms a conclusionby applying the law to the dispute description. It does this by applying rules for specific sets of facts.55

Finally, the computer can perform tasks based on the description given.56 This process may enableindicative decisions to be expressed. However, there are many other factors that have an impact ondecision-making. The Australian Law Reform Commission (ALRC) has noted that such factors includeinduction and intuition as well as the capacity to assess the social impact of decisions.57

Branching technology that is not rule-based was used in a project of the Intelligent Computing SystemsResearch conducted by La Trobe University and Victoria University (called ‘Split-Up’). The project,which determined that there are 94 factors relevant for a percentage split decision, was directed atapplying AI to assist in calculating the division of property in family law proceedings and led byProfessor John Zeleznikow.58 ‘Split-Up’, a hybrid rule-based neutral network system that grew out ofthis research, offers advice on how a property is likely to be distributed if the matter is determined by acourt. It has been trialled by some judges, judicial registrars and registrars of the Family Court ofAustralia as well as legal practitioners, mediators and counsellors. A more advanced approach, which isoriented at supporting negotiation, is called Family_Winner.59

It is unlikely that these technologies will replace judges or decisional dispute resolvers; however, theydo have the capacity to help them – by checking logical rules and even by creating a community ofdecision-making that can test the unconscious. As Keith Mason has noted – this will not lead to thedemise of human decision-making – or judging – as discretion is still a critical feature of all good judgingprocesses:

54 P Savasdisara, ‘Computer-assisted Legal Analysis Systems: Part 1: The Origins of Computer-aided Support Systems’(1994) 5(2) Computers and Law 28.

55 See MJ Hall, D Calabro, T Sourdin, A Stranieri and J Zeleznikow, ‘Supporting Discretionary Decision-making withInformation Technology: A Case Study in the Criminal Sentencing Jurisdiction’ (2005) 2(1) University of Ottawa Law andTechnology Journal 1.

56 P Savasdisara, ‘Computer-assisted Legal Analysis Systems: Part 1: The Origins of Computer-aided Support Systems’(1994) 5(2) Computers and Law at 28.

57 ALRC, Review of the Adversarial System of Litigation. Technology – What It Means for Federal Dispute Resolution,Issues Paper 23 (ALRC, Canberra, March 1998) p 100.

58 See J Zeleznikow on www.vu.edu.au/about-vu/our-people/john-zeleznikow (accessed 8 May 2012).59 See J Zeleznikow and E Bellucci, Family_Winner: Integrating Game Theory and Heuristics to Provide Negotiation

Support, available on <www.jurix.nl/pdf/j03-03.pdf> (accessed 8 May 2012); J Zeleznikow, E Bellucci, UJ Schild and GMackenzie, Bargaining in the Shadow of the Law – Using Utility Functions to Support Legal Negotiation (InternationalConference on Artificial Intelligence and Law, 2007) pp 237–246.


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But it is men and women enjoying judicial independence who administer justice, notautomata or computers. In many areas judges are given broad discretions for a varietyof reasons. If legislators wish to guide, inform or limit those discretions they are generallyfree to do so, but much room for movement is left – often deliberately. Within the rules,judges “have the capacity, and sometimes the obligation, to exercise qualities ofjudgment, compassion, human understanding and fairness.” 60

Conclusions

There are other relevant factors in the context of decision-making that influence the way thatdeterminative dispute resolvers make decisions and can be linked back to the overarching objectives ofthe particular form of the decision-making. For example, objectives that relate to conventionaladjudication emphasise the importance of precedent setting and the development of law. These objectivescan be contrasted with broader objectives: will the decision be effective (complied with) or will thedecision promote respect for the arbitral system? It may be that ‘blended’ adjudicative processes canmeet these objectives more readily than traditional adjudicative processes, because there is an activeconsideration of issues relating to how the decision is made and communicated (rather than onlyconsidering whether or not the decision is ‘right’).

The objectives of any decision-making processes play an important role in framing the neurobiologicalresponses to those processes. They create a broader framework within which dispute information issorted, questioned and analysed. Procedural explanations by those involved in determinative and advisoryprocesses are critical in helping to ensure that this work is undertaken in an orderly and effective manner.These explanations also help arbitrators and all participants to engage appropriately and promote themore logical gathering and sorting of information. However, even when these frameworks are in place,innate, learned and situational factors will impact on decision-making processes. Much of this articlehas considered these neurobiological issues from the perspective of rational and irrational thinkingresponses; and it is clear that sometimes these individual factors will enable the brain to be hijacked andresist rational decision-making.

60 K Mason, ‘Unconscious Judicial Prejudice’ (2001) 75 The Australian Law Journal 676 at 766.


Understanding the Paramount Object in

the Context of Party AutonomyMichael JF Sweeney1

Commercial arbitration may succinctly be described as a private, determinative dispute resolution processconducted by an impartial arbitrator constituted by the agreement of the disputant parties. The processgives the parties autonomy and, together with the arbitral tribunal, allows them to determine the procedurefor the arbitration. In this sense and to date, the arbitral process is a two way compact between the partiesand the tribunal. Effective commercial arbitration is dependent on the proper organisation and certaintyof the arbitral process and the quality and character of the tribunal itself.

The reforms for the conduct of international commercial arbitration in Australia and reforms of domesticcommercial arbitration, presently rippling through the different State jurisdictions, seek to deliver greatercertainty of process and enhance the capacity of the arbitral tribunal to deliver a quality outcome.Domestic commercial arbitration reform has been implemented through the passage of uniformlegislation based predominately on the United Nations Commission on International Trade Law, ModelLaw (Model Law).2 However, one of the most notable and potentially far reaching reforms adopted inthe domestic legislative reforms does not spring from the Model Law. It is the provision of the ‘paramountobject’.

The paramount object in s1AC of the Commercial Arbitration Act 2011 (Victoria)3 (the Act) is ‘tofacilitate the fair and final resolution of commercial disputes … without unnecessary delay or expense’.Fairness and finality capture the requirement to act in accord with natural justice and the objective thatarbitration be a conclusive and final hearing. The other aspect is to facilitate the arbitral process withoutunnecessary delay and expense. What is required to be achieved is amplified in sub section (2) whichhas two limbs. The paramount object is to be achieved by enabling the parties to agree on how the disputeis to be resolved. The second limb is to provide procedures for resolution in a cost effective manner,informally and quickly. The rider of seeking efficiency is a layer added to the traditional supremacy ofparties’ self determination in deciding on appropriate arbitral procedures for the conduct of their dispute.Sub section (3) introduces a quite revolutionary factor. It also introduces an additional characteristic tothe former traditional two way compact. This is the requirement, mandatory upon the arbitral tribunal,for it to exercise its functions for the achievement of the paramount object. This new mandatory factoris legislated policy which, at least in the Victorian Minister’s second reading speech, is intended to be

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1 Michael JF Sweeney LLB, FIAMA, FCIArb, Chartered Arbitrator (UK), FACICA, Barrister, Victorian Bar, Arbitrator &Commercial Mediator. Member WIPO and ACICA arbitration panels, WA Energy Review Board, Member Victorian Civil &Administrative Tribunal. Director MEO Australia Ltd. Formerly, senior managing executive Mitsubishi and Mitsui jointventure for the North West Shelf LNG Venture; consultant in Australian gas industry privitisations; Chair, Law Council ofAustralia, Energy & Resources Committee.

2 United Nations Commission on International Trade Law, Model Law on International Commercial Arbitration 1985, asamended to 2006.

3 Also Commercial Arbitration Act 2010 (NSW) s1C; Commercial Arbitration Act 2011 (Tasmania) s1C.


promotional of commercial efficiency in the conduct of private dispute resolution. The paramountobject’s legislative enunciation in s1AC of the Act is unique.

This paper will:

(a) Provide background by recalling the recent Australian domestic arbitration environment and aperceived need for cultural change;

(b) Consider the interpretation of the paramount object in the overall context of the Act, specifically,its operation in relation to s18, equality and reasonable opportunity for presenting a party’s case;s19, the parties’ freedom to agree on procedure or as the arbitral tribunal considers appropriate;

(c) Examine the extent to which the paramount object impacts on party autonomy and impacts on thediscretionary power of the tribunal to conduct the arbitration in such manner as it considersappropriate; and

(d) Consider how the operation of paramount object from a practical perspective may serve toreinvigorate a balance between party autonomy and fairness of treatment for all parties.

Recent Australian domestic arbitration environment

In 2008 at the Institute of Arbitrators & Mediators Australia (IAMA) National Conference in Fremantle,Western Australia, I delivered a paper on the opportunities for domestic arbitration4 in the context of thetrenchant criticisms levelled by His Honour Justice Ronald Sackville over the extraordinary length andcost of litigation in the case Seven Network Limited v News Limited & Others,5 known as the C7 litigation.My chief argument was that, while domestic arbitration was capable of delivering more efficient andless costly outcomes compared to litigation, it seemed that it was failing to do so and that the achievementof this would require cultural change amongst practitioners, arbitrators and parties. If one could engineera change to the domestic arbitration environment, one could produce the necessary cultural shift.

I referred to the then recent change made by IAMA to adopt in its Arbitration Rules an overridingobjective. This was modelled on the Lord Woolf reforms of the United Kingdom subsequentlyincorporated into the Civil Procedure Rules for the courts of England and Wales6 and later in practiserules of court such as the New South Wales Uniform Civil Procedure Rules and the Victorian SupremeCourt Commercial Court Practise Note 2010. The objective adopted by IAMA reads at Rule 1: ‘that thearbitration is conducted: fairly, expeditiously and cost effectively; and in a manner which is proportionateto: the amount of money involved; the complexity of the issues, and any other relevant matter’.7 Ofcourse the IAMA rule for the overriding objective is just that, a rule and only given effect if adopted bythe parties.

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4 Institute of Arbitrators & Mediators Australia, The Arbitrator & Mediator (2008) Vol. 27 (2) 11. 5 [2007] FCA 1062 (26 July 2007).6 Civil Procedure Rules 1998, England & Wales – the White Book. 7 The IAMA Arbitration Rules, Institute of Arbitrators & Mediators Australia, 1 June 2007.


Court rules, to the extent they stipulate a paramount or overriding objective of efficiency remain onlyrules of procedure and as such are read down as servants and not masters of justice.8 In part recognitionof the limitation of court rules, Victoria enacted its Civil Procedure Act 2010. Section 7 provides anoverarching purpose for the operation of that Act and rules of court to facilitate the just, efficient, timelyand cost-effective resolution of the real issues in dispute. It provides that a court must seek to give effectto the overarching purpose in the exercise and interpretation of its powers. It is beyond the scope of thispaper to examine the operation and interpretation of the overarching purpose of Civil Procedure Act.However it should be noted that s9 sets out the court’s powers to further the overarching purpose. Inmaking any order or giving any direction, a court shall further the overarching purpose by having regardto matters which include the public interest in the early settlement of disputes by agreement, the efficientconduct of the business of the court, the efficient use of judicial and administrative resources and dealingwith civil proceedings in proportion to the complexity of the issues in dispute and the amount in dispute.9

The intent of the overarching purpose and the policy behind it may be informed by the ExplanatoryMemorandum to the Civil Procedure Act.

The provisions of the Bill aim to ensure the appropriate use of the court system bylitigants and to prevent the wastage of court resources through inefficient processes ortactical litigation that has the effect of reducing access to the courts for other litigantswith meritorious claims.10

The context of the reforms made by the Civil Procedure Act is the public interest in early settlement ofdisputes and the efficient use of judicial and administrative resources. As will be discussed, the legislativeprescription for the paramount object under the new Commercial Arbitration Act is to be distinguishedas it intrudes into the realm of private arbitral dispute resolution and the attendant freedom of the partiesto set their procedures, none of which depends on the public purse.

In the same period as these other reforms were occurring, the movement for reform of domesticarbitration across Australia gained considerable momentum. The approach generally agreed under theauspices of Standing Committee of Attorneys General (SCAG) was that the several Australianjurisdictions should adopt the Model Law for its domestic arbitration and so bring it into greateralignment with the regime for the conduct of international arbitration in Australia. Going well beyonddiscussions of several years ago however, the reforms include a paramount object superimposed on theregulation of private parties’ dispute resolution process. The paramount object is an expression of publicpolicy concerning aspects of a private dispute resolution process, now given legislative force by beingembedded in the new Act. Apart from recognising requirements of fairness, the public policy expressedin the paramount object goes to the importance to be attached to finality and to the avoidance ofunnecessary delay and expense. The fact that the achievement of the paramount object is mandated uponan arbitral tribunal, gives clear statutory force in the relevant Australian jurisdictions that the conduct ofprivate determinative dispute resolution must be cost effective and efficient. Whether the arbitrators ofAustralia are making a cultural change in their approach to the conduct of domestic arbitration or not,

17

8 Harding v Bourke (2000) 48 NSWLR 589.9 Civil Procedure Act 2010 (Victoria) s9(1)(a) – (g).10 Civil Procedure Bill 2010, Explanatory Memorandum, 22 June 2010.


the relevant law makers of this nation’s jurisdictions have certainly acted to impose their will upon theprivate dispute resolution process.

Interpretation of the paramount object

The extent to which the paramount object will impact on and influence the future conduct of domesticarbitration in Australia will depend on how s1AC is interpreted by the court’s when it may come beforethem for consideration. For example, what is to be given primacy? Is it the age old and long cherishedprinciple of party autonomy, captured now in s19(1) of the Act, and coupled with the relatively free handof the arbitral tribunal to mould procedures as it sees appropriate, as per s19(2)? Or, in the interests ofminimising delay or expense, will primacy be given to the new added obligation of the tribunal tointerpret the Act, as far as practicable, to achieve the paramount object?

We cannot understand the importance to be assigned to the paramount object merely by looking atindividual words of the section and conducting an analysis through a process of logic. In the words ofSir Owen Dixon CJ in the Commissioner for Railways (NSW) v Agalianos11: ‘the context, the generalpurpose and policy of a provision and its consistency and fairness are surer guides to its meaning thanthe logic with which it is constructed’. Indeed, the meaning of the provision must be determined ‘byreference to the language of the instrument viewed as a whole’ (Cooper Brookes (Wollongong) Pty Ltdv Federal Commissioner of Taxation)12.

Reconciling conflicting provisions of any act will often require the court ‘to determine which is theleading provision and which is the subordinate provision, and which must give way to the other’ (Instituteof Patent Agents v Lockwood).13 The High Court stated in Project Blue Sky v Australian BroadcastingAuthority:14

Only by determining the hierarchy of the provisions will it be possible in many cases togive each provision the meaning which best gives effect to its purpose and languagewhile maintaining the unity of the statutory scheme.

And further:

A legislative instrument must be construed on the prima facie basis that its provisionsare intended to give effect to harmonious goals. Where conflict appears to arise fromthe language of particular provisions, the conflict must be alleviated, so far as possibleby adjusting the meaning of the competing provisions to achieve that result.

The task of interpreting a statute will of course also be directed by the interpretation of acts legislationof the relevant State or Commonwealth15 which provide in materially the same way for the use of extrinsic

18

11 (1955) 92 CLR 390 at 397.12 [1981] HCA 26; (1981) 147 CLR 297 at 320 per Mason and Wilson JJ.13 [1894] AC 347 at 360 per Lord Herschell LC.14 (1989) 194 CLR 355 at 381 per McHugh, Gummow, Kirby and Hayne JJ.15 For example, Acts Interpretation Act 1901 (Commonwealth) s15AA, an interpretation that would best achieve the

purpose or object of the Act should be preferred.


materials such as second reading speeches and explanatory memoranda as aids to interpretation.16

It is not intended to attempt an exhaustive statutory interpretation of the paramount object’s operationin the new Act. It would in any event only be one interpretation and, as we have witnessed in respect ofthe former uniform domestic commercial arbitration Acts, settled interpretation was the result of manydecades of judicial pronouncements. My reference to some of the material precepts that govern statutoryinterpretation however, serves to remind us that the court will interpret the paramount object’s place inthe Act by giving effect to its purpose and at the same time maintaining the unity of the overall statutoryscheme of the Act.

Looking at the Act with these statutory interpretation precepts in mind, how might we consider theoperation of the paramount object itself and its relationship with other provisions of the Act, particularlythe engine house provisions of domestic arbitration, s18 and s19? What is the hierarchy of theseprovisions as would give each provision a meaning which best gives effect to its purpose whilstmaintaining the unity of the commercial arbitration Act? And how is settling upon a hierarchy influencedby a provision that is expressed to be paramount and mandatory?

Section 1AC of the Commercial Arbitration Act 2011 (Victoria) reads (emphasis added):

1AC Paramount object of Act

(1) The paramount object of this Act is to facilitate the fair and final resolution of commercialdisputes by impartial arbitral tribunals without unnecessary delay or expense.

(2) This Act aims to achieve its paramount object by—

(a) enabling parties to agree about how their commercial disputes are to be resolved(subject to subsection (3) and such safeguards as are necessary in the public interest);and

(b) providing arbitration procedures that enable commercial disputes to be resolved ina cost effective manner, informally and quickly.

(3) This Act must be interpreted, and the functions of an arbitral tribunal must be exercised,so that (as far as practicable) the paramount object of this Act is achieved.

The very designation of ‘paramount object’ might be considered to speak for itself. There could be littleargument against the proposition that s1AC was intended by SCAG and the enacting legislatures toexpress a consideration of utmost importance. However, the actual expression of the paramount objectis in less absolutist language. It is to ‘facilitate’ a ‘fair’ and ‘final’ resolution without ‘unnecessary’ delayand expense. It is not, for example, to achieve final resolution in a quick cost effective manner. As notedby Doug Jones in his most comprehensive work on the new domestic legislation,17 it is not expressed in

19

16 For example, Interpretation of Legislation Act 1984 (Victoria). S35.17 Commercial Arbitration in Australia, 2011 Law Book Company, Doug Jones, page 40 [2.150].


the earlier language of the SCAG 2009 Consultation Draft Bill which stated the object as being ‘tofacilitate the fair, quick and cost effective final resolution’. The express words of the paramount objectare ‘to facilitate’ not dictate; by means of a ‘fair and final resolution’, not by means of a resolutionwhatever the cost to fairness or finality; and to achieve this without ‘unnecessary delay or expense’,recognising that delay and expense can be unavoidable.

The facilitation of the paramount object is expressed in sub section 2 as being achieved by enabling theparties to agree about how their dispute is to be resolved, echoing s19 which states that the parties arefree to agree on the procedure to be followed in the arbitration. But importantly and starkly, sub section(3) effectively makes freedoms such as those in s19 subject to the arbitral tribunal being required to actto achieve the paramount object. What is the reason for this stark language?

The responsible Ministers’ second reading speeches in both the NSW Legislative Council and theVictorian Legislative Assembly18 are in substantially the same terms. The second reading speeches recitedthe first and main principle agreed on by SCAG (in April 2009) for guiding the drafting of the uniformlegislation based on the Model Law. The Ministers stated:

The bill is based on the text and spirit of the model law … However, the model law doesnot provide a complete solution to the regulation of domestic commercial arbitration …the bill should give effect to the overriding purpose of commercial arbitration, namely,to provide a quicker, cheaper and less formal method of finally resolving disputes thanlitigation.

Further the second reading speech stated:

Stakeholders advocated for and endorsed the inclusion of a paramount objective clause,noting the absence of such a provision as a weakness in the existing uniform commercialarbitration legislation.

Applying the principle in Heydon’s case,19 a court will consider the state of the law before the makingof an Act and the mischief to be remedied. The second reading speeches, highlighting as they do theweakness in the previous legislative regime, are strong pointers as to the mischief intended by Parliamentto be remedied. The will of the Parliaments appears clear from the second reading speeches. It signalsintent for the operation of the paramount object to drive change, shifting the arbitral zeitgeist anddifferentiating it from a commercial litigation culture associated, at least in the past, with traditionalprocedures often mired in cost and complexity. It signals that arbitration should deliver quicker and finaloutcomes without unnecessary delay and cost, subject of course to the requirements of fairness.

There is however a significant qualification to the mandatory language of the paramount object in subsection (3). It is the words in brackets stating that the Act and the functions of the arbitrator must beexercised ‘as far as practicable’ to achieve the paramount object. This phrase is redolent of the expression

20

18 Hansard, New South Wales Legislative Council, 12 May 2010, The Hon. John Hatzistergos; Hansard, VictorianLegislative Assembly, 17 August 2011, The Hon. Robert Clark.

19 (1584) 3 CO Rep 7a.


used in the judgment of the High Court previously referred to in the Project Blue Sky:20 ‘Where conflictappears to arise from the language of particular provisions, the conflict must be alleviated, ‘so far aspossible’ by adjusting the meaning of the competing provisions to achieve that result’ (emphasis added).The qualifying expression ‘so far as practicable’ in s1AC(3) is a recognition of the inherent tensionbetween the paramount object and other provisions of the Act and gives an insight on the limit of themandatory nature of the paramount object. The qualifying expression draws a line that puts the limit toan unbridled and literal interpretation of what may be meant by ‘paramount’. The expression gives forceto the valuable admonition of the Supreme Court of the United States:

But no legislation pursues its purposes at all costs. Deciding what competing values willor will not be sacrificed to the achievement of a particular objective is the very essenceof legislative choice – and it frustrates rather than effectuates legislative intentsimplistically to assume that whatever furthers the statute’s primary objective must bethe law.21

The paramount object and party autonomy

As stated at the outset, the legislative requirement for fairness and for efficiency, coupled with amandatory requirement for the arbitral tribunal to achieve this paramount object, is unique. The questionis what is its impact on the fair and equal treatment of the parties and on party autonomy to agree onprocedure for the conduct of arbitration? In particular, how can the operation of sections 18 and 19 ofthe Act be viewed in light of the paramount object?

S18 states that the parties must be treated with equality and given a ‘reasonable’ opportunity of presentingits case. The equality of s18 and the requirement for a ‘fair’ resolution in the first part of s1AC(1) of theparamount object is unlikely to be controversial. But, the section does vary from the Model Law byusing a ‘reasonable’ opportunity instead of a ‘full’ opportunity for a party presenting its case. Perhapsnot much turns on this difference as it seems to be reflective of the usage of those terms as understoodon the one hand in Australian jurisdictions and on the other through international practise where theModel Law is used. However, the Model Law does not contain a paramount object. The use of theexpression ‘reasonable opportunity’ is to be understood in light of the paramount object and themandatory requirement on the tribunal to give effect to it. Thus, the extent to which a party may beregarded as having been accorded a reasonable opportunity of putting its case will likely be determinedaccording to the dictates of efficiency and expense in a way that differs from international practise underthe Model Law and potentially may even diverge from the manner of applying common law principlesof natural justice.22 This is a significant difference. It is also an example of where the operation of theparamount object and interpretation of the new domestic Acts will not necessarily achieve the promotionof uniformity with international practice under the Model Law as contemplated by s2A of the Act.23

21

20 Supra, note 13. 21 Rodriguez v United States 480 U.S. 522 (1987), 23 March 1987. 22 The extent to which this may call into consideration the application of common law principles of natural justice or,

conversely, be limited to the statutory prescription for review under s34(2) is a matter for future resolution. 23 Commercial Arbitration Act 2011 (Victoria) s2A, International origin and general principles.


But it is the interaction of s19 with the paramount object that produces a potentially revolutionary effecton the conduct of arbitration in Australia. S19(1) states the time honoured and legally recognised rightof the parties to autonomy in agreeing on the procedures to be adopted. S19(2) states that failingagreement of the parties, the arbitral tribunal may conduct the arbitration is such manner as it considersappropriate. S19 purports to describe when and to what extent the arbitral tribunal has power to conductthe arbitration.

However, sub section (1) states that the party autonomy to agree on procedure is ‘subject to the provisionsof this Act’. Equally sub section (2), allowing the arbitral tribunal to conduct the arbitration as it considersappropriate, is expressed as ‘subject to the provisions of this Act’. Whilst these expressions ofconditionality are the same as that used in the Model Law, unlike the Model Law, these qualificationsalso operate to make it clear that party autonomy and the exercise of an arbitrator’s discretion are subjectto the requirements, amongst other things, of equality in s18 and the dictates of the paramount object ins1AC.

The interaction of these sections with the paramount object surely results in a check on and, thereby, adeparture from the previously enshrined principles both of broad party autonomy and, subject to that,the more laissez faire discretion of the arbitral tribunal. It is a departure compared to the former UniformActs where freedom to decide on procedure is expressed with the caveat: ‘unless otherwise agreed inwriting by the parties’.24 It is also a departure from an arbitral tribunal’s previous procedural powers25

which were not fettered by a mandatory requirement to achieve a paramount object. This is not to saythat restrictions of any kind on autonomy and on arbitral tribunal discretion are new. The freedom ofparties to set their procedure or indeed resolve a dispute by arbitration has always been subject to publicpolicy requirements such as acting in accordance with the rules of natural justice and providing forsupervisory powers of court.26 However, I repeat that the nature of entrenchment and enunciation of theparamount object is unique. It witnesses that public policy has evolved, shifting arbitral norms ofbehaviour, with demand for efficiency and avoidance of expense in the private domain of arbitration.

The closest relative and likely foundation of the words contained in the paramount object is theArbitration Act 27 of the United Kingdom (UK Act). In s1 of the UK Act, General Principles are describedas:

(a) the object of arbitration is to obtain the fair resolution of disputes by an impartialtribunal without unnecessary delay or expense;

(b) the parties should be free to agree how their disputes are resolved, subject only tosuch safeguards as are necessary in the public interest; …

22

24 Commercial Arbitration Act 1984 (Victoria) s19(3). 25 Commercial Arbitration Act 1984 (Victoria), s14. 26 Redfern & Hunter, Law and Practice of International Commercial Arbitration, 4th edition, paragraph 6.01 generally;

Commonwealth v Cockatoo Dockyard Pty Ltd, (1995) 36 NSWLR 662 as to powers of the court. 27 Arbitration Act 1996, United Kingdom, s1, General principles.


The words of the Australian paramount object closely follow the General Principles contained in s1 ofthe UK Act. However, the construction of s1 and its object and the procedural sections of 33 and 34,operate so as to confirm the primacy of party autonomy by not subordinating it to the object expressedin the General Principles. Consequently, this results in a quite different outcome compared to the usageemployed in new uniform Australian legislation. By s1AC(3) of the new Act, the arbitral tribunal has alegislative duty, consistent with equality and fairness, to exercise its functions without unnecessary delayor expense, suggesting a duty proportionate to the particular arbitration at hand, but a duty nonetheless.

Some commentators have noted that the paramount object gives the arbitral tribunal a discretion to directprocedure contrary to a party or parties wishes so as to comply with the paramount object. However, inmy view, this states the position rather too lightly. As discussed, the authorities state that a legislativeinstrument must be construed on the prima facie basis that its provisions are intended to give effect toharmonious goals. In the majority of arbitrations, it is unlikely that a conflict will arise between behaviourof parties in the exercise of their freedom to agree on procedure and the paramount object. However,where there is a clear conflict between one party’s asserted procedural right (such as having detailed andcostly discovery) in proportion to the size of the arbitration in terms of efficiency, time and cost, it isarguable that the arbitral tribunal does not have the ability to use its discretion under s19(2) to acceptthat position. Instead it must act, so far as practicable, to achieve the paramount object. This duty of thearbitral tribunal reflects the policy apparent in the second reading speeches that ‘… the bill should giveeffect to the overriding purpose of commercial arbitration, namely, to provide a quicker, cheaper andless formal method of finally resolving disputes than litigation’.

A further observation needs to be made concerning the interpretation of the paramount object. Whilstthe interpretation will become clearer over time as the courts have the opportunity to give it theirconsideration, the avenues for seeking recourse to the courts to set aside an award or to appeal againstan award under the Act28 are greatly restricted compared to the old uniform Acts. The frequency of suchapplications or appeals could reasonably be expected to diminish under the new regime. In respect ofopportunities for the courts to consider the operation of the paramount object, a party aggrieved by costand delay caused by the behaviour of a recalcitrant party will have little ability to seek review. It maypossibly seek review under s16(4) or s16(6), asserting that the tribunal is exceeding its scope of authorityand jurisdiction by its failure to act under s1AC(3) and thereby permitting unnecessary delay and cost.29

A more likely manner in which an application to set aside may come before the courts is, for example,by a losing recalcitrant party arguing under s34(2) (ii) or (iv) that the award is to be set aside on thebasis that it was unable to or did not have a reasonable opportunity of presenting its case and that theprocedure adopted by the tribunal was not in accordance with the Act (such as not meeting requirementsof fairness). In exercising review of an award in these more limited situations, a Court will have theopportunity to consider the mandatory nature of the paramount object and the extent to which this may

23

28 Commercial Arbitration Act 2011 (Victoria) s5, limits to court intervention; s34, setting aside an award; 34A, appealagainst award.

29 Also, Commercial Arbitration Act 2011 (Victoria) s17H and s17I coupled with s36(1)(a) or (b), application againstenforcement of interim measure, may possibly give rise to an argument that the interim award is incompatible withs1AC(3).


or may not have justified the course adopted by the tribunal in its management of procedures and themaking of its award. However, it is likely to take quite some time before a reasonable body of precedentcan be established.

Conclusion

The paramount object and duty under s1AC(3) upon the arbitral tribunal arguably serves to restore andreinforce the contractual balance underlying the arbitration agreement when it was established at thetime of contracting; when at that time, by choosing arbitration, the parties had agreed to party autonomyin deciding the dispute consistent with an efficient and commercial outcome. It is usually only at thelater stage when a dispute has arisen, that one party may become uncooperative and draw out the process.Where this is permitted by the arbitral tribunal, all too frequently in the past, the other party to thearbitration bargain is being treated in effect without equality and most certainly does not receive thebenefit of the dispute resolution process for which it originally bargained. It is the balance betweenautonomy and efficiency that has arguably long been adulterated, either by tribunals’ timid conduct ofarbitration by indulging the recalcitrant party, or by courts in imposing judicial procedures or standardson what was intended to be a ‘private’ arbitral process.

I have mentioned the operation of the paramount object and the arbitral tribunal’s duty under sub section1AC(3) in terms of responding to the behaviour of a recalcitrant party. However, if in accordance withthe intent of the first limb of sub section (2) of the paramount object, both parties had agreed onprocedures, but these procedures were of a time consuming and costly nature, the arbitral tribunal canbe prevented from acting under its duty and seeking to enforce efficiencies on the parties. This resultsfrom the operation of s32(2) and (3) of the Act where, should the parties agree to terminate proceedings,the tribunal must do so with the consequence that the tribunal’s mandate is simultaneously terminated.This suggests a limit to the tribunals duty under s1AC(3). A court would be guided by the scheme of theAct which gives the parties, acting together, ultimate control over proceedings. It should be reasonableto observe that, when the parties are acting in agreement, the paramount object constitutes little erosionof their autonomy. In any event, an arbitral tribunal could not call upon a court to intervene or enforcea procedure which has been rejected by both parties as it does not possess such a power under the newAct.

From a practical perspective, the paramount object should serve to put a recalcitrant party on notice thatthere is a real limit to using procedural tactics to delay and draw out an arbitration. It should also serveas a real impetus for an arbitral tribunal to act with greater assuredness in conducting the arbitration andcontrolling unnecessary delay and expense. But failing that, at the very least, the paramount objectshould serve to make an arbitral tribunal aware that its power and discretion under s19(2) should not beexercised in a way inconsistent with the requirements of the paramount object and that a non recalcitrantparty may with force insist that the tribunal act in accordance with its mandated duty to achieve theobject.

The difference between Australian jurisdictions that have the paramount object legislatively embeddedin the manner discussed and other jurisdictions that do not, can be further appreciated by referring to a

24


colourful allegory from the international and UK arbitration world. Redfern & Hunter 30 describe thebalance between party autonomy in setting procedure and any overriding requirements of applicable lawby saying that an arbitration is like a ship. An arbitration may be said to be owned by the parties, just asa ship is owned by shipowners, with the ship under the command of the captain arbitrator. The ownersmay dismiss the captain if they wish and hire a replacement, but there will always be someone on boardwho is in command.31 The allegory is fine so far as it goes. However, it is unhelpful in considering thebalance between party autonomy and any overriding requirements where it is only one of the parties, orone of the shipowners, that is being recalcitrant. Should the ‘Good Ship Arbitration’ stray into Australianwaters under the new uniform domestic arbitration Acts, if a procedural dispute arises between the co-owners, captain arbitrator will be under a duty to achieve the paramount object, expected to rule againstthe recalcitrant co-owner and so act to prevent driving the ‘Good Ship Arbitration’ onto the rocks.

I repeat my concluding remark at the 2012 IAMA National Conference. When anyone as arbitrator takestheir place at their next arbitration hearing under the new Act, take a moment to look about you. Asalways, you will observe the disputant parties before you. However, in a new pew, sitting very quietlybut with fixed gaze, you will observe ‘Public Policy’ who will rarely announce his appearance, in mostinstances having nothing whatsoever to say. But should he speak, listen well; for it will be to tell youwhat you must do.

25

30 Redfern & Hunter, Law and Practice of International Commercial Arbitration, 4th edition.31 Supra, paragraph 6.02.


26


27

1 Ian Nosworthy BA, LLB, LFIAMA, FCIArb, AIPM, Nosworthy Partners, Lawyers Arbitrators Mediators2 In section 1C. In this paper, “New Act” means the Commercial Arbitration Act 2010 (NSW) and its counterparts in other

States, and “Old Act” means the uniform Acts introduced throughout Australia from the mid 1980’s to 1990.3 In Murchison Zinc Company Pty Ltd v Thiess Construct Contractors Pty Ltd (WA Full Court) dated 20 June 2010, the

version of the Statement of Claim under attack was the ninth version of that document. In the Myer Centre litigation inSouth Australia in the early 1990’s requests for particulars granted by the Court turned a 17 page Statement of Claiminto a document well over 1000 pages long with many pleadings applications still outstanding. This led to a Court reviewof the rules relating to pleadings and particulars.

Saving Time and Cost in Major

ArbitrationIan Nosworthy1

Introduction

Arbitrators should work assiduously to save both time and cost in all forms of arbitration. Obviouslymajor arbitrations are likely to offer more scope for creative management, and the New CommercialArbitration Act2 places the need to resolve commercial disputes “without unnecessary delay or expense”front and centre.

It has been said of the courts that “at least the Judges are free”. With daily hearing fees in mostjurisdictions that is less true than it used to be. However, it is undoubtedly the case that in arbitration the“Judge” and the venue are paid for by the parties.

It is possible to consider many aspects of the Court process, which if followed slavishly by an arbitrator,will simply add to the costs of the parties, without any commensurate benefit.

This paper explores successive steps of the dispute process, looking at ways in which time and cost canbe saved, without sacrificing fair and final resolution.

Eliminating or Reducing Pleadings Disputes

It is commonplace for pleadings in complicated matters to undergo multiple revisions.3 One is temptedto ask what good is really achieved by so many iterations of the document.

It is also commonplace for an arbitrator at the provisional preliminary conference, and often beforeentering onto the reference, to say to the parties, words to the effect of, “In a couple of minutes tell mewhat your claim is about”. Then, upon hearing what the claim is about, the arbitrator is likely to say tothe respondent, words to the effect of, “In a couple of minutes tell me what your defence and/orcounterclaim are”.

Recently, in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33WAR 82 Martin CJ said:

“It is, I think, important when approaching an issue of that kind to bring to mind thecontemporary purposes of pleadings. The purposes of pleadings are, I think, well known


28

and include the definition of the issues to be determined in the case and enablingassessment of whether they give rise to an arguable cause of action or defence as thecase may be, and apprising the other parties to the proceedings of the case that theyhave to meet.

In my view, the contemporary role of pleadings has to be viewed in the context ofcontemporary case management techniques and pre-trial directions. In this Court, thosepre-trial directions will almost invariably include; firstly, a direction for the preparationof a trial bundle identifying the documents that are to be adduced in evidence in thecourse of the trial; secondly, the exchange well prior to trial of non-expert witnessstatements so that non-expert witnesses will customarily give their evidence-in-chiefonly by the adoption of that written statement; thirdly, the exchange of expert reportswell in advance of trial and a direction that those experts confer prior to trial; fourthly,the exchange of chronologies; and fifthly the exchange of written submissions.

Those processes leave very little opportunity for surprise or ambush at trial and, it ismy view, that pleadings today can be approached in that context and therefore in a rathermore robust manner, than was historically the case; confident in the knowledge thatother systems of pre-trial case management will exist and be implemented to aid indefining the issues and apprising the parties to the proceedings of the case that has tobe met.

In my view, it follows that provided a pleading fulfils its basic functions of identifyingthe issues, disclosing an arguable cause of action or defence, as the case may be, andapprising the parties of the case that has to be met, the Court ought properly be reluctantto allow the time and resources of the parties and the limited resources of the Court tobe spent extensively debating the application of technical pleadings rules that evolvedin and derive from a very different case management environment.”

The five steps suggested by Chief Justice Martin are almost invariably directions given by an experiencedarbitrator.

For the reasons articulated by Chief Justice Martin, what then is the merit of a pleadings battle? Surelythe key issue is the recognition that, at some stage of the dispute, there must be a sufficientlyparticularised pleading and response, so that the parties clearly inform the other of the cases to be metand pursued, and ultimately determined by the arbitrator. That presumably ought to be at about, but notnecessarily prior to, the start of the hearing, provided the parties have in the course of preparing thematter at all times had a proper understanding of the dispute.

To that end, it is presumably sufficient for relatively simple points of claim to commence the process,and be met with an outline of the respondent’s key points of defence, and relatively little more until afterthe preparation of the trial book and exchange of witness statements and expert reports.

Certainly there is no reason why that relatively simple exchange should not occur early, and it shouldnot hold up the further steps to prepare the matter for hearing.


29

Simplifying Discovery and Production of the Trial Book

Frequently, the next area of major debate, and waste of both time and cost, is the process of discovery.

In litigation, parties exchange “lists of documents”. Debates occur about whether there has been fulldiscovery, discovery by category or bundle, sometimes about thoughtless discovery, perhaps even thepossibility of burying your opponent in paper.

To what good end? There is no magic in the list of documents itself, and mostly the parties have anexcellent idea of what documents are relevant, and both omissions and excesses can be dealt with at, orafter, the hearing in a variety of ways.

The only relevance of discovery is to identify and group documents, which will form part of the trial bookand permit parties to lead evidence by reference to or through those documents. There are some simplerules which should be observed, in preparing the index and the trial book: -

1. The claimant prepares the first draft, and the respondent adds to it;

2. If either party wants a document in the trial book it goes in;

3. Summaries or extracts may not be used instead of the complete document;

4. If a party has failed to provide a document which turns up at the hearing, and is important, theopposing party is likely to be entitled to an adjournment and costs;

5. The numbering process should permit numeric searching by computer;

6. The process of assembly of the trial book should identify who introduced the document. This can bedone by number of simple strategies;

7. In the event that there is a debate about the utility or otherwise of a particular document or group ofdocuments being included in the trial book, if it transpires that they are not used, the party introducingthem should bear the cost involved in any event, and subject to persuading the arbitrator otherwise,irrespective of the outcome of the arbitration.

It may well be that various sections of what comes to be the trial book are relevant for use in expertconclaves, and the preparation, and preparing and indexing the trial book should proceed with both aimsin mind.

When preparing the trial book, some attention to its manageability should be given. Trite as it is to say,there is no point in attempting to put 600 pages in a lever-arch file designed to hold 450. The files needto be manageable in the hearing room. The parties should make sure that the numbering is clear so if, forexample, further photocopying is needed, the numbers are not lost when the document is recopied.

There are a number of modern technologies such as Drop Box, which can be used to save documents tothe parties’ computers, and if necessary, to synchronise them with an iPad, or a mobile phone, as well asrecord changes made by way of adding or removing documents. Proper use of modern technology canhelp the parties work efficiently to manage documents both of an electronic or hard copy kind in aneffective and economic way.


30

Experts

Parties are probably not yet ready for the appointment of a single expert whose role is to advise thetribunal. Courts and others have sometimes advocated such an approach, but while that may beappropriate in specific kinds of case, mostly that position will not be adopted for the time being.

The chances are that as the work, the subject of the dispute, proceeds, the parties will have used expertsto advise them in many areas, perhaps particularly where there are variations or programming issues, orother considerations on site which require a rethinking of that which was planned, undertaken orattempted. For that reason there are likely already to be experts on each side in major matters.

However, honest experts are usually able to agree on matters fairly readily. There is no place for dishonestexperts, and the experts who are engaged need to sign expert witness protocols, which proliferate in thecourts these days, and can readily be adapted to arbitration, so that it is clear that their obligation is tothe arbitration ahead of party interests.

Usually the differences between experts relate to the assumptions that they are asked to make, and thesemay derive from factual differences between the parties, introduced by lay witnesses. Even so, andrecognising that such differences may not always be able to be overcome, the sooner the experts meet,the better.

A powerful reason for ensuring that this occurs is that, in many cases, the divergences between the partiescan escalate. If the differences are understood early on, either commercial resolution, or recognition ofthe risks involved may lead to resolution of the claim, or perhaps compromise on specific issues whichmay take the heat out of the dispute, or at least discrete parts of it.

What is an Expert Conclave and How Does it Work?

Not everybody understands the expert conclave process. It is usually treated as a without prejudicediscussion between two, perhaps more, experts and it remains without prejudice until a joint report isproduced, usually signed by both experts. The parties’ lawyers will not be present at an expert conclaveif it is to be effective. Furthermore, given that it is without prejudice as between the parties, the arbitrator’sinvolvement in the discussions is necessarily limited, and requires discretion.

Most competent experts have no wish to be seen as a barracker, because the word gets around fairlyquickly in what is still a relatively small industry.

Conclaves work, because the parties identify the material on which the experts are working. The expertsidentify where they are in agreement, and where they are in disagreement, and it is common place thateven in complex matters the experts will be able to reduce the areas of disagreement to a few A3 sizedsheets, which then tell the arbitrator what it is that they have to look for, listen to and make findingsabout in the evidence given at the hearing.

Time and money spent on expert conclaves is likely to be reflected by savings in time at the hearing, aswell as by achieving a significant number of agreements, which themselves will save both time andcosts. If the outcome is a series of relatively short A3 page documents setting out the claim number, the


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claimant’s claim, the respondent’s response, the reason for their differences, the nature of the issue to bedetermined, and what the arbitrator has to do to come to a conclusion, this will invariably result in thedispute being brought into a clear focus at the hearing.

Before attending an expert conclave, the arbitrator needs to have an understanding of what papers theexperts have been provided with, and indeed to be armed with a copy of those papers, so that while theexperts are conferring, the arbitrator can consider what it is that the experts are discussing, either froman agenda of topics, or an analysis of the claims and responses. Routinely, the arbitrator will meet withthe experts and explain to them that which the lawyers already know, namely that if the experts are honestand competent, the differences between them will almost certainly boil down to either differences in thefacts on which they are asked to work, or perhaps some other technical differences. The arbitrator willnot participate in the substantive discussions of the experts.

Most expert witnesses are actually quite eager to explain to the arbitrator the justification for theirconclusions, and for that reason, they are willing to identify succinctly what it is that the arbitrator mustdo to make findings which come to the conclusion reached by the expert. This clearly focuses on thedebate in advance of the trial in precisely the way contemplated by Chief Justice Martin, and encouragedby experienced arbitrators.

Pre-Trial Procedures – Preliminary Conference Management

The major advantage of arbitration is the ability of the arbitrator to move, and help the parties also move,very quickly. Arbitrators can simply move much more rapidly than the Court, even though the FederalCourt docket system permits very effective court management of its cases.

An arbitrator should generally encourage the parties to cooperate and deal intelligently with each otherin respect of preparation of the matter for hearing. Complicated matters are usually difficult enough,without attempts at petty point scoring. However, there is absolutely no reason why the arbitrator cannotalways be available on short, but reasonable, notice for a phone hook-up if some particular sticking pointemerges in relation to interlocutory issues.

An arbitrator may use institutional rules, and a variety of standard form orders to administer an arbitrationprocedurally, but it is invariably better to attempt to tailor a process which is specific to the particulardispute at hand.

The matter should always be regularly managed by preliminary conferences held, if necessary, by aphone hook-up.

There is however no reason why an arbitrator cannot prepare and distribute minutes on the day of apreliminary conference. A few simple rules will help. List the hearing for late morning. Have a templateagenda/ minutes prepared in advance. Work through the items in sequence. Without fail, get the minutesout before close of business on the day of the preliminary conference. Do not attempt to record everyword spoken, but invite the parties to acknowledge that you have dealt with major matters discussed,and invariably the minutes will become virtually set in stone. Keep a folder of the minutes. Number thepreliminary conferences. Refer back to earlier minutes, to ensure that nothing has slipped between thecracks.


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Insist on an Early Face-to-Face Meeting of the ClientPrincipals with the Legal Representatives Present

Arbitrators sometimes overlook the importance of holding a face to face meeting of the parties early.Generally, the earlier the better, though there is one rule about attempts at settlement, namely that it issometimes too early, but never too late. It may be that a particular individual on one side or the other hasclimbed to a position from which it is difficult to descend, but an early meeting with appropriate seniorrepresentatives will usually flush that out. Such a meeting provides an ideal setting in which to analysethe commercial reality, or otherwise, of the proceedings, and arbitrators should take the trouble to dothis, and not assume that the lawyers have done it.

It may be achieved by obtaining rough agreement from the parties as to the cost on a per day basis forrooms, counsel, witnesses, the parties (including opportunity costs), office support, transcript, thearbitrator and where appropriate, an associate. In the course of costing the hearing times, it is necessaryfor the arbitrator to distinguish between lay witness days and expert witness days, because the latter aregenerally considerably more expensive.

The arbitrator should ask the parties estimate to the likely length of the hearing by reference to thenumber of witnesses, the number of experts and the nature and amount in dispute. If there is a seriousdiscrepancy between the parties in their estimates, this may well give some clue as to the difference inthe parties’ approaches to the matter.

If arbitrators apply a healthy scepticism to estimates provided, and have regard to their own experience,this will usually assist them to conduct an effective conference of this kind.

Provided they are aware of the costs involved early enough, the parties are usually well able and willingto make sensible commercial decisions which may resolve the matter. On the other hand, if this step hasnot been taken until the parties are committed, it may well be that whatever the common sense ofresolving the matter, well-resourced parties will conclude that they have spent enough to chance theirarm in a hearing, usually to the detriment of both.

Planning the Hearing

The parties should be directed to provide a schedule of witnesses, with a time allowed for cross-examination by agreement of the parties. The schedule initially should be for lay witnesses only, andunless there is some good reason why not, all the lay witnesses should give evidence prior to the expertwitnesses. The expert witnesses should be scheduled to be heard in a hot-tub setting on a topic by topicbasis, after the lay evidence.

The witness schedule should be published and provided to the arbitrator, and should allow both areasonable time for cross-examination, and should permit the parties to plan an orderly approach tomanagement of the hearing. If there is a need for revision of the schedule, which should occur byagreement, but if there is disagreement that can be readily dealt with by a further directions hearing.

It may be appropriate to allow a few gaps at strategic points of the hearing to accommodate slippage, orother unforeseen contingencies.


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Cost Protection Offers

There are a variety of forms of cost protection offers, which may involve ingenuity on the part of theparties, and there is no reason why the arbitrator should not remind the parties that there a variety ofways in which both sides can protect themselves to some extent in relation to costs, because the makingof such offers may well encourage the parties to resolve the matter overall, or take steps to narrow theambit of the matters being contested in the hearing.

Naturally, any cost protection offers should be sealed, so that the arbitrator is not affected thereby, andcan deal with them when the question of costs arises.

The Modern Management of Arbitration

The discussion of natural justice in Geoffrey Gibson: The Arbitrator’s Companion makes it clear thatone of the main concepts of procedural fairness is to ensure that a party is able to properly present itscase. Section 18 of the New Act enshrines that principle.

In Johnson v Johnson (2000) 174 ALR 655 at paragraph 13 a majority of the High Court said:-

“Whilst the fictional observer, by reference to whom the test is formulated, is not to beassumed to have a detailed knowledge of the law, or of the character or ability of aparticular judge, the reasonableness of any suggested apprehension of bias is to beconsidered in the context of ordinary judicial practice. The rules and conventionsgoverning such practice are not frozen in time. They develop to take account of theexigencies of modern litigation. At the trial level, modern judges, responding to a needfor more active case management, intervene in the conduct of cases to an extent thatmay surprise a person who came to court expecting a judge to remain, until the momentof pronouncement of judgment, as inscrutable as the Sphinx. In Vakauta v Kelly Brennan,Deane and Gaudron JJ, referring both to trial and appellate proceedings, spoke of “thedialogue between Bench and Bar which is so helpful in the identification of real issuesand real problems in a particular case.” Judges, at trial or appellate level, who, inexchanges with counsel, express tentative views which reflect a certain tendency of mind,are not on that account alone to be taken to indicate prejudgment. Judges are notexpected to wait until the end of a case before they start thinking about the issues, or tosit mute while evidence is advanced and arguments are presented. On the contrary, theywill often form tentative opinions on matters in issue, and counsel are usually assistedby hearing those opinions, and being given an opportunity to deal with them.”

It is common place for counsel to complain about some Judges who do sit mute while evidence isadvanced and arguments are presented. If anything is a potential time-waster on the part of the arbitrator,it is that approach, and good arbitrators should be willing to have a dialogue with counsel, aimed atgetting to the heart of the matters in issue.


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Conduct of the Hearing

It goes almost without saying that the arbitrator should be firm and fair. Whether the proceedings areconducted under the Old Act (section 14), or the New Act (section 19(3)), the arbitrator’s approachshould be the same and reflect the need to resolve the dispute without unnecessary delay or expense.

It is plain that in a major or long-running matter, things may go wrong in ways which do not reflectbadly on the parties. A little latitude by the arbitrator will not hurt because disputes of all sizes, whichgo to a contested hearing, involve enough tension, without additional unnecessary pressure being applied.

Experienced arbitrators should probably consider and accommodate the reporters and witnesses wellahead of the parties and lawyers, but there is no reason, for example, why a particular witness shouldnot be allowed to be run over a little to accommodate flight times and personal convenience. However,for the purpose of publishing a schedule of anticipated witnesses, and allowing reasonable time for cross-examination, the arbitrator should guard against such techniques as running interstate witnesses orcounsel against flight times or other petty conduct.

It is a good idea to establish a proper, cooperative tone early.

Regime for Objections to Evidence

The parties to a well-run arbitration before a legal arbitrator should at least consider an agreementpursuant to section 19(3) of the Old Act to dispense with the rules of evidence. The New Act, again insection 19(3), contemplates that the arbitral tribunal will have the power to determine the admissibility,relevance, materiality and weight of any evidence.

The provisions do not either make it “open slather” or negate a need for a regime for objections toevidence. An agreement as to a protocol for the nature of objections which might be taken, could be asfollows:-

1. (HS): Hearsay evidence, both oral and written, will be admitted subject to relevance as proof of thecommunication of the matters asserted but not as proof of the truth of those matters.

2. Documents (D): Where documents are in evidence or available to be tendered in evidence, evidenceof the contents or effect of those documents will be admitted subject to relevance as evidence ofproof of the state of mind or understanding of the witness but not as proof of the contents or effectof the documents; it is and remains the task of the Court to determine those matters.

3. Relevance (R): Oral or documentary evidence to which objection is taken on the ground of relevancewill be admitted subject to relevance unless the Court is persuaded in a particular case that to takethis approach will unduly prolong the hearing.

4. No probative value (NPV): Evidence which has no probative value in respect of an issue of fact orlaw in the arbitration shall be excluded.

5. Limitations (L): no objection if admitted only as evidence of [for example, limited to evidence ofa factual assumption made by the witness only].


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6. Conclusions: Evidence of conclusions (C), other than opinion based on specialised knowledge (O),will be admitted subject to relevance only as evidence of the state of mind or understanding (SM)where a basis for the conclusion is shown; but if no basis is shown then the evidence will be excluded.

6.1 As to conclusions:

(1) C-A: argumentative or submission and not evidence of fact or a conclusion,

(2) C-B: no basis for the conclusion of fact in the evidence,

(3) C-K: the evidence is not a fact within the witness' knowledge,

(4) C-L: conclusion of law, not evidence, shall be disregarded subject to relevance beingestablished.

6.2 As to an opinion based on specialised knowledge:

Opinion evidence shall be disregarded where

(1) O-E: the witness lacks the expertise to express the opinion, or expertise has not beenestablished,

(2) O-FA: the expert has not identified the relevant factual assumptions on which his opinionis based,

(3) O-M: the basis of the opinion has not been established on facts in evidence or identifiedassumed facts and/or there is no explicit reasoning from the fact (or assumed fact) to theconclusion/opinion Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705.

6.3 As to evidence of state of mind:

(1) Evidence of the state of mind (SM) of a witness or another including evidence of intention(SI) or speculation (SS) shall be disregarded subject to relevance being established.

Everything in Writing

In an effort to save time and cost, the parties should be required to present everything in writing whichcan be reduced to writing. This includes pleadings, openings, evidence in chief and submissions.Generally, there should be no oral evidence in chief from witnesses, beyond swearing them to theirwitness statement. There should also be a regime in place for the provision of a colourised version ofthe statement of the next witness to be called. This needs to be ideally a few days ahead, so that objections,if there are any, can be dealt with in an orderly fashion. It is desirable that that regime should beadministered reasonably firmly.

In the case of the evidence regime referred to above, the colourised version of the witness statement ofthe witness to be called will be coloured blue, where it is suggested that the statement to which objectionis taken should be struck out, and yellow, where it is contended that there is a weakness in the evidence,and the weakness is identified by an objection in accordance with the protocol, but it did not need to bestruck out.


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Often the outcome of a particular objection may be so obvious that it will be conceded by the other side.The process which follows may well be a response in tabular form to both the opposition and thearbitrator, and then a further reply either conceding the objection or arguing the position, so that at thecommencement of the witness’ oral evidence, rulings may be given, often without further argument.

As a matter of probability, a large number of objections will be treated as “yellow”, with the consequencethat the evidence is not struck out but the basis of the objection is sufficiently noted, so that if that partof the witness testimony becomes critical, the arbitrator can make an appropriate allowance for thealleged weakness of the testimony.

When considered with the benefit of hindsight that process will work well, and save arid debates aboutadmissibility, relevance and the like.

Hot-Tub Expert Evidence

There have been a number of papers on the presentation of expert evidence in a hot-tub setting.4

Generally, the witnesses will sit together at the witness’ table, being sworn in at the same time. If thereis a challenge to some aspect of one witness’ evidence, that challenge may be dealt with, initially, usuallyby the opponent’s counsel cross-examining the witness after brief evidence in chief, in the usual way.When the hot-tub evidence commences, counsel calling the witness will be at liberty to ask questions,and opposing counsel also. The witnesses are able to ask questions of each other, and comment uponwhether or not they agree with the opinions expressed by the other witness.

In most circumstances the previous participation in the expert conclaves well prepares the witnesses forthe hot-tub process. Their differences will be relatively well understood, and, handled sensibly, such aprocess is likely to save many days hearing time without disadvantaging either party.

Indeed such a process may, with the assistance of counsel, lead to further agreements which, in a sense,become an extension of the agreements reached in the expert conclave process.

Agreement on a Chronology

In most substantial disputes an analysis of the events chronologically permits a clearer understanding ofcause and effect, and also permits the testing of oral evidence about a course of conduct, or series ofevents, that can be measured against what was written, said or done at the time. Once more cooperationbetween the parties is of the essence. Frequently opposing parties will put a different spin on a particularevent or incident, but it is usually a straight-forward process to analyse the preferable view, when thatevent is placed in its chronological consequence. The parties should identify whose entry it was in thechronology, if there is any contention about a particular item, so that the arbitrator is helped to distinguishbetween chronology and submission.

4 See for example, McClellan CJ, “Concurrent Expert Evidence” 29 November 2007


The Form and Contents of the Award

Both the Old and New Acts provide for the form and contents of the award, in sections 29 and 31respectively.

Both Acts contemplate that the award will be in writing and signed, and require a “statement of the reasonsfor making the award” in the Old Act, and “the reasons on which it is based” in the New Act.

Section 31(3) of the New Act permits the parties to agree that no reasons are to be given. It is rare forsuch an agreement to be made.

What was meant by “a statement of the reasons for making the award” was hoped to be dealt with by theHigh Court in Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37. The much awaiteddecision really did nothing more than repeat the standards stated by Donaldson LJ when giving judgementin Bremer [1981] 2 Lloyd’s Rep 130 at 132-133 namely:-

“All that is necessary is that the arbitrators should set out what, on their view of theevidence, did or did not happen and should explain succinctly why, in the light of whathappened, they have reached their decision and what that decision is. This is all that ismeant by a reasoned award.”

In reality, the High Court’s majority decision amounts to saying “how long is a piece of string?”, becauseunder both Acts what is required to satisfy the statutory provision will “depend upon the nature of thedispute and the particular circumstances of the case.”5

In light of the High Court’s approach it is probably important that the parties should consider whether ornot, under the New Act, they ought to agree that no reasons are to be given.

If such an agreement is made, the parties will be likely to have taken steps which will preclude the Court’sintervention under Part 7 of the New Act.

Recourse against the Award

Sadly, in some jurisdictions the Arbitrator’s Award is seen by well-resourced parties as simply a step inthe process. If enough is in dispute, the arbitrator’s award will routinely be followed by an application forjudicial review of the award. In different States the Courts have grappled inconsistently with the principlesfor the grant of right of appeal. Unfortunately, an arbitration routinely followed by a round of litigationmerits the melancholy remarks of Heydon J in Gordian Runoff.6

In what might be described as the interventionist States, the Courts have been quick to find “error of factor law on the face of the award”, whereas in other States a much more robust approach has been taken.

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5 Gordian Runoff Ltd at [53]6 Gordian Runoff Ltd at [111]


There were options available under the old Act to avoid judicial review if that was the parties’ wish andthe New Act has attempted to reinforce that position, and has probably substantially succeeded in mostcircumstances.

Exclusion Agreements under the Old Act

Under the Old Act it was necessary for the parties to sign an exclusion agreement if there was to be anattempt to affect the parties’ rights to seek judicial review of an award under section 38 of the Act ordetermination of a preliminary point of law.

An exclusion agreement in relation to arbitration appeals under the Old Act might be as follows:-

The award of the arbitrator [name] in this matter will be considered to be final andbinding by the parties and no party will institute or maintain proceedings in any courtby way of appeal and all parties expressly agree that this agreement is intended to anddoes operate as an exclusion agreement affecting rights under sections 38 and 39 of theCommercial Arbitration and Industrial Referral Agreements Act 1986, and the partiesagree that:

(a) the Supreme Court shall not, under section 38(4)(b), give permission to appealwith respect to a question of law arising out of an award; and

(b) no application may be made under section 39(1)(a) with respect to a question oflaw.

Part 7 of the New Act

Under the New Act, Part 7 seeks to limit recourse to the Court, requiring an application for setting asidein accordance with section 34(2) and (3), or an appeal under section 34A.

Section 34(2) and (3) contemplate that an arbitral award may be set aside by the Court in very limitedcircumstances:-

(i) party incapacity or arbitration agreement invalidity;

(ii) party not given proper notice or otherwise unable to present the party’s case;

(iii) limited rights with respect to decisions beyond the scope of the submission to arbitration;

(iv) composition of tribunal or procedure not in accordance with the parties’ agreement orthe Act;

b) disputes not capable of settlement by arbitration or the award is in conflict with the publicpolicy of the State.

Applications for setting aside may not be made after 3 months have elapsed from receipt of the award.

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Section 34(2) requires the party making the application to furnish proof of the items complained of.While the grounds would appear to be extremely limited, the fact that a review by the Court is retained,and includes amorphous concepts such as “conflict with…public policy”, may leave the door slightlyajar in an interventionist jurisdiction. In reality the grounds for setting aside an award under section 34are so limited, that they should not be relevant to a regularly constituted, and properly run arbitration.

Experienced arbitrators would be well advised to have regard to section 34(2) of the Act during thecourse of the arbitration to ensure that there is no technical irregularity, which permits an opportunisticapplication by a disappointed party.

Under section 34A of the New Act, an appeal lies on a question of law if the parties agree before theend of the appeal period (3 months after the award) and the Court grants leave.

The Court must not grant leave unless it is satisfied:-

(a) the determination of the question will substantially affect the rights of one or more of theparties; and

(b) the question is one which the tribunal was asked to determine; and

(c) on the findings of fact in the award –

(i) the decision is obviously wrong; or,

(ii) the question is one of general public importance and the decision of the tribunal is at leastopen to serious doubt; and

(d) despite the agreement of the parties to resolve the matter by arbitration, it is just and proper inall the circumstances for the Court to determine the question.

The appeal under section 34A is only on a question of law, and requires the parties to agree and theCourt to grant leave. The limitations on the Court’s ability to grant leave are significant, and in section34A(3) the provisions are cumulative so that provided the Courts adhere to the obvious legislative intent,this must very substantially restrict the number of appeals. The parties may further reduce the optionsfor appeal by making an agreement under section 31(3) that there will be no reasons given.

The consequence of these provisions must be to limit judicial review and therefore substantially enhancethe position of arbitration in our dispute resolution regime.

Application to Smaller Arbitrations

This paper attempts to address which can be applied to major arbitration in an effort to save time andcost. In major arbitrations there is usually more scope for cost and time saving, but there is no reasonwhy similar principles should not apply to smaller arbitrations. Experienced arbitrators will probablyadapt the proposals outlined in this paper with a close eye on the question of cost/benefit. Many of theproposals appropriate to major arbitration need to be modified to suit the circumstances of a smallerarbitration, but must always be aimed at reducing delay and expense.

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Arbitration Law in Victoria Comes of Age1

Albert Monichino2

Introduction

The Commercial Arbitration Act 2011 (Vic) (‘the revised CAA’)3 repeals and replaces the CommercialArbitration Act 1984 (Vic). The latter Act was part of a compact of statutes enacted by the six States andtwo Territories in about 1984 to regulate domestic arbitration.4 They were progressively reformed untilabout 1990. From 1990 until June 2010, they had uniform status (‘the uniform Acts’).

The enactment of the revised CAA must be seen in its proper context. It is part of the modernisationand harmonisation of Australia’s international and domestic arbitration regimes. Arbitration is boomingin the Asia-Pacific region. It is the preferred method of dispute resolution in respect of transnationalcommercial contracts. The impetus for the recent reforms is to position Australia as a hub for disputeresolution in the Asia-Pacific region.

Therefore, the reforms are relevant to Australia’s international engagement. In that regard, Justice Croftof the Supreme Court of Victoria recently commented, extra-curially:

If Australia, and its courts… do not take real steps to encourage and promote arbitration,Australia will be marginalised in an international arbitral system. This will beparticularly acute as arbitration in the Asia-Pacific region continues to growexponentially. This will have significantly adverse consequences in terms of thedevelopment of our international legal expertise and the involvement of Australia’s legaland other professionals in international trade and commerce.5

In this article, I will:(a) briefly describe the history of the reform process; (b) discuss the significance of the UNCITRAL Model Law (‘the Model Law’);(c) identify some major issues in respect of the operation of the revised CAA as compared with the

uniform Acts (including a discussion of the recent High Court decision in Westport InsuranceCorporation v Gordian Runoff (2011) ALR 593; and

(d) identify some future challenges for domestic arbitration in Australia.

1 This article is based on a paper presented to the Victorian Department of Justice’s ‘The New Commercial Arbitration Act2011’ seminar on 30 November 2011 in Melbourne.

2 Senior Counsel, LLM (Cambridge), FCIArb, FACICA, FIAMA; Barrister, Arbitrator and Mediator.3 The revised CAA was passed by the Victorian Parliament on 18 May 2012 and came into force on 17 November 2011.4 Commercial Arbitration Act 1984 (NSW); Commercial Arbitration Act 1984 (Vic); Commercial Arbitration Act 1985 (NT);

Commercial Arbitration Act 1985 (WA); Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA);Commercial Arbitration Act 1986 (Tas); Commercial Arbitration Act 1986 (ACT); Commercial Arbitration Act 1990 (Qld).

5 Clyde Croft, ‘International Arbitration and the Australian Courts’ (Paper presented at the ICC Australia ‘InternationalArbitration and Beyond’ Conference, Melbourne, 10 August 2011), 20.


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History of the Reform Process

The uniform Acts were under review by the then Standing Committee of Attorneys-General (‘SCAG’)since 2002. The reform process, however, stalled in about 2007, apparently because consensus couldnot be reached between the various States and Territories on the form of the amended legislation.6

Prior to the recent reforms, domestic arbitration was in a state of malaise in Australia. So what had gonewrong with domestic arbitration? There were two significant problems:

(a) first, domestic arbitration too often mimicked court proceedings (including by the adoption ofelaborate pleadings and extensive discovery) and thereby failed to fulfil its potential as an efficientand cost-effective alternative dispute resolution process.7 Meanwhile, the courts had ‘raised thebar’ by adopting more efficient processes in the management of civil disputes;8

(b) secondly, there was too much scope for courts to interfere with arbitral awards under the uniformActs – in particular, under section 38 (error of law) and section 42 (misconduct, including technicalmisconduct). Whilst leave to appeal was required under section 38 of the uniform Acts, thisrequirement was often circumvented by rolling-up an application for leave to appeal under section38 with an application to set aside an award for misconduct under section 42.9 As a result, theperceived finality of arbitral awards was seriously undermined.

On 21 November 2008, the Federal Attorney-General announced a review of the International ArbitrationAct 1974 (Cth) (‘IAA’). At the same time, a discussion paper was released proposing certain amendmentsto the international arbitration regime in Australia so as to bring it in line with international best practice.10

On 10 December 2008, the Chief Justices of the various State and Territory Supreme Courts made asubmission to the Federal Attorney-General in respect of the discussion paper. Their Honours stated:

It would not assist Australia’s position in relation to international arbitration if the lawwith respect to domestic arbitration develops in a significantly different manner [to thelaw with respect to international arbitration]. Creating a barrier between internationaland domestic commercial arbitration systems, in a way that does not exist, mostrelevantly, in Hong Kong and Singapore, would constitute a significant disadvantage.Any attempt to hold out Australia as a centre for international arbitration will notsucceed if the domestic arbitration system does not operate consistently with theinternational arbitration regime.11

6 For a history of SCAG’s attempts to reform the uniform Acts prior to 2007, see Robert Hunt, ‘Changes to the UniformCommercial Arbitration Acts’ (Paper presented to the IAMA National Conference, Adelaide, 1-3 June 2007).

7 See Peter Megens and Beth Cubitt, ‘Meeting Disputants’ Needs in the Current Climate: What has gone wrong withArbitration and how can we repair it?’ (2009) 28(1) The Arbitrator & Mediator 115.

8 Including case management conferences (somewhat similar to the ICC Terms of Reference procedure), ‘chess-clock’hearing procedures, joint expert conferences and ‘hot-tubbing’ of experts.

9 See Vicky Donnenberg, ‘Judicial Review of Arbitral Awards under the Commercial Arbitration Acts’ (2008) 30 AustralianBar Review 177, 181-186.

10 The discussion paper can be accessed at <http://www.ag.gov.au>. The submissions made in response can be accessed at <http://www.ema.gov.au>.11 See comments by the Chief Justices of the Australian States and Territories, available at

<http://www.ag.gov.au/internationalarbitration/>. The submission addressed the question as to whether the FederalCourt of Australia should be given exclusive jurisdiction in matters arising under the IAA.


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In an address given in February 2009, Spigelman CJ (as he then was), said:

The focus on commercial arbitration as a form of commercial dispute resolution hasalways offered, but rarely delivered, a more cost effective mode of resolution of disputes.Our uniform legislative scheme for domestic arbitration is now hopelessly out of dateand requires a complete rewrite. The national scheme implemented in 1984 has not beenadjusted in accordance with changes in international best practice. Of course, in ourfederation, agreement on technical matters such as this in multiple jurisdictions is alwayssubject to delay. The delay with respect to the reform of the Commercial Arbitration Actsis now embarrassing. This is not an area in which harmonisation based on the lowestcommon denominator principle is appropriate.

In my opinion, the way out of the impasse is to adopt the UNCITRAL Model Law as thedomestic Australian arbitration law. It is a workable regime, itself now subject to reviewat the Commonwealth level. Its adoption as the domestic Australian arbitration lawwould send a clear signal to the international commercial arbitration community thatAustralia is serious about a role as a centre for international arbitration. Our competitorsin this regard, such as Hong Kong or Singapore, do not create a rigid barrier betweentheir domestic and international arbitration systems. Nor should we.12

Spigelman CJ’s remarks were timely and reignited the debate concerning reform of the domesticarbitration legislative regime in Australia. There is little doubt that his Honour’s comments were a catalystto SCAG’s resolution at its meeting on 16-17 April 2009 to reinvigorate and update the uniform Acts. Inparticular, SCAG’s Communiqué of 17 April 2009 recorded:

Ministers agreed to the drafting of new uniform commercial arbitration legislation basedon the UNCITRAL Model Law on international commercial arbitration, supplementedby any additional provisions as are necessary or appropriate for the domestic scheme.The aim of the draft model Bill is to give effect to the overriding purpose of commercialarbitration, which is to provide a method of finally resolving disputes that is quicker,cheaper and less formal than litigation… (emphasis added).13

In late 2009, SCAG circulated an Issues Paper together with a draft Commercial Arbitration Bill 1999(‘the 2009 Bill’). The main issues raised for consideration were whether the Model Law (draftedprimarily to regulate international arbitration) was appropriate to regulate domestic arbitration and,further, what amendments to the Model Law and/or supplementary provisions were required toaccommodate domestic arbitration.

Submissions in respect of the Issues Paper and comments on the 2009 Bill were requested by 15 January2010. There was little opposition to the adoption of the Model Law as the backbone of the new domestic

12 Address by the Honourable J Spigelman AC, Opening of Law Term Dinner, 2009, the Law Society of New South Wales,Sydney, February 2009, available at:<http://www.ipc.nsw.gov.au/lawlink/Supreme_Court/ll_sc.nsf/vwFiles/Spigelman020209.pdf/$file/Spigelman020209.pdf>.

13 Standing Committee of Attorneys-General, Communiqué, 16-17 April 2009, 6 <http://www.scag.gov.au>.


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arbitration Act as proposed by SCAG. The 2009 Bill was further refined in light of the submissionsreceived and on 7 May 2010, SCAG resolved that the various States and Territories should adopt a newModel Bill (‘the CAA Model Bill’) to replace the existing uniform Acts.

New South Wales lost no time and the CAA Model Bill was introduced into its parliament on 13 May2010. The Commercial Arbitration Act 2010 (NSW) commenced operation on 1 October 2010.

At the federal level, the reform process culminated in the enactment of the International ArbitrationAmendment Act 2010 (Cth) (‘IAA Amending Act’) on 17 June 2010 by the Federal Parliament. Itreceived Royal Assent on 6 July 2010.14

The CAA Model Bill has since been passed by the parliaments of Tasmania,15 South Australia16 and theNorthern Territory.17 Victoria is the latest State to enact the CAA Model Bill. It is currently before theparliaments of Western Australia and Queensland. It is yet to be introduced into the parliament of theAustralian Capital Territory. It is hoped and expected that Australia will have a new uniform domesticarbitration law in the foreseeable future.

The recent reforms in Australia have not occurred in a vacuum. Since 1996, there has been significantreform of arbitration legislation in other parts of the world, notably in the United Kingdom, New Zealand,Malaysia, Hong Kong and Scotland. Similarly, the institutional Arbitration Rules of various arbitralcentres18 have been updated and modernised. This is all part and parcel of the increasing globalcompetition for arbitration work.

The UNCITRAL Model Law

Australia adopted the Model Law in 1989 by amendment to the IAA. It forms Schedule 2 to the IAA. Ithas the force of law by virtue of section 16 of the IAA.

Gary Born has described the Model Law, in his authoritative work, as ‘the single most importantlegislative instrument in the field of international commercial arbitration’.19 The Model Law wasproduced by the United Nations Commission on International Trade Law (‘UNCITRAL’) in 1985 afterfour years of drafting, involving delegates from many jurisdictions. It reflects worldwide consensus onkey aspects of arbitration practice. In general, it represents a compromise between Common Law andCivil Law tendencies.20 The Model Law:

14 For further detail of the reform of the IAA, see Albert Monichino, ‘Arbitration Reform in Australia: Striving for InternationalBest Practice’ (2010) 29(1) The Arbitrator & Mediator 29; see also Peter Megens and Adam Peters, ‘InternationalArbitration Amendment Act 2010 (Cth) – Towards a new brand of Australian International Arbitration’ (2011) 30(1) TheArbitrator & Mediator 48.

15 Commercial Arbitration Act 2011 (Tas).16 Commercial Arbitration Act 2011 (SA).17 Commercial Arbitration Act 2011 (NT).18 Including the Singapore International Arbitration Centre (‘SIAC’), the International Chamber of Commerce Court of

Arbitration (‘ICC’) and the Australian Centre for International Commercial Arbitration (‘ACICA’). 19 Gary Born, ‘International Commercial Arbitration’ (Wolters Kluwer, 2009) vol. 1, 115. 20 Jack Coe, ‘The Serviceable Texts of International Commercial Arbitration: An Embarrassment of Riches’ (2002) 10

Willamette Journal of International Law and Dispute Resolution 143, 148.


45

…reflects the common denominator of laws applicable to international arbitration. It isa compromise which has stripped out national characteristics and contains provisionsacceptable to most systems.21

The philosophy of the Model Law is to minimise judicial intervention in the arbitral process and, further,to affirm and promote party autonomy with regard to arbitral procedures. As its name suggests, theModel Law is a prototype law on international commercial arbitration. It need not be adopted verbatim.It may be amended and/or supplemented.22

While designed with international commercial arbitration in mind, the Model Law offers a set of basicrules that are also suitable for domestic arbitration:

[It] consists of 36 articles, which deal comprehensively with the issues that arise innational courts in connection with international arbitration. Among other things, theLaw contains provisions concerning the enforcement of arbitration agreements (Articles7-9), appointment of and challenges to arbitrators (Articles 10-15), jurisdiction ofarbitrators (Article 16), provisional measures (Article 17), conduct of the arbitralproceedings, including language, situs, and procedures (Articles 18-26), evidence-takingand discovery (Article 27), applicable substantive law (Article 28), arbitral awards(Articles 29-33), setting aside or vacating awards (Article 34), and recognition andenforcement of foreign arbitral awards, including bases for non-recognition (Articles35-36).23

Indeed, New Zealand,24 Hong Kong25 and Scotland26 have adopted the Model Law to regulate bothdomestic and international arbitration.

The Model Law mandates the presumptive validity of both international arbitration agreements andinternational arbitration awards, subject to limited, specified exceptions.27 It also requires the recognitionand enforcement of foreign arbitral awards on terms identical to those prescribed in the New YorkConvention. The grounds for non-recognition parallel the grounds for setting aside an award.28

In 2006, the Model Law was revised. Australia is one of the few countries so far to have adopted the2006 revision of the Model Law (in both the amended IAA and also the CAA Model Bill).29

21 Julian DM Lew, Loukas A Mistelis and Stefan Kröll, Comparative International Commercial Arbitration (Kluwer LawInternational, 2003), vi.

22 This is to be contrasted with a convention, such as the 1958 Convention on the Recognition and Enforcement of ForeignArbitral Awards. (‘New York Convention’), which, apart from certain reservations, can generally only be ratified verbatim.

23 See Born, above n 19, 117. 24 Arbitration Act 1996 (New Zealand).25 Arbitration Ordinance 2010 (Hong Kong).26 Arbitration (Scotland) Act 2010 (UK).27 See Born, n 19 above, 117-118.28 Compare Article 36 with Article 34 of the Model Law. 29 The other jurisdictions are: Brunei Darussalam, Costa Rica, Georgia, Hong Kong, Ireland, Mauritius, New Zealand, Peru,

Rwanda, Slovenia and the US State of Florida.


46

The Model Law has now been adopted (in one form or another) by almost sixty jurisdictions around theworld,30 including by many of Australia’s Asia-Pacific neighbours (notably, Hong Kong and Singapore).31

There is considerable advantage in a jurisdiction being able to describe itself as a ‘Model Lawjurisdiction’:

The enacting state is commonly able to attract more foreign business to its shores. Thisis due to the fact that potential investors can rely on a minimum legislative standard inthe adopting state, much without the danger of unwanted legal surprises in an unknownjurisdiction.32

Australian courts have had relatively little experience in applying the Model Law. Most of that experiencerelates to applications for stays of court proceedings (under Article 8 of the Model Law) brought in theface of an arbitration agreement which refers the relevant category of dispute to arbitration.33 To a lesserextent, Australian courts have considered the Model Law (in particular, Articles 35 and 36) in the contextof recognition and enforcement of arbitral awards.34 Another issue that has arisen in the context of theModel Law is whether the parties have impliedly opted out of the Model Law for the purposes of section21 of the IAA (prior to its recent amendment).35 Accordingly, the adoption of the Model Law in thedomestic arbitration legislation will pose a challenge for both Australian courts and legal practitioners.

The revised CAA will enable expertise developed under the domestic regime to be applied under theinternational regime, thus allowing domestic arbitration to be used as a training ground for internationalarbitration by Australian practitioners and arbitrators alike.36 It is likely that decisions under the revisedCAA (and its counterparts) will be considered in determining whether Australia is an attractive seat for

30 There are various ways in which the Model Law can be adopted. First, by incorporation by reference (as has been donein the IAA). Secondly, by direct adoption (as has been done in the CAA Model Bill). See Dr Peter Binder, ‘InternationalCommercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions’ (Sweet & Maxwell, 2010), 17-18.

31 A full list of countries which have adopted the Model Law is available at <http://www.uncitral.org>.32 See Binder, above n 30, 13.33 For example, Gilgandra Marketing Co-Operative Limited v Australian Commodities & Merchandise Pty Ltd & Anor

[administrator appointed] [2011] NSWSC 16 (4 February 2011).34 For example, Uganda Telecom Ltd v Hi-Tech Telecom Ltd (No 2) (2011) 277 ALR 441. In many such cases, Australian

courts have referred to the equivalent provision of the IAA (s 8) without expressly mentioning the Model Law. See, forexample: Nicola v Ideal Image Development Corporation Inc (2009) 261 ALR 1; China Sichuan Changdong Electric CoLtd v CTA International Pty Ltd [2009] FCA 397; and LKT v Chun [2004] NSWSC 820.

35 See Lightsource Technologies Australia Pty Ltd v Pointsec Mobile Technologies AB (2011) 250 FLR 63. Opting out ofthe Model Law is no longer permitted under section 21 as amended, following the enactment of the IAA Amending Act.There is lingering doubt whether section 21 (as amended) has retrospective operation to arbitrations commencedpursuant to arbitration agreements entered into before the IAA Amending Act came into force; namely, 6 July 2010.Contrast Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd [2012] FCA 21 with Rizhao Steel HoldingGroup Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50.

36 Stephen McComish, Sam Luttrell and Cameron A Miles, ‘Understanding Australia's New Domestic Arbitration Regime: AComparison of the Australian State Commercial Arbitration Acts and the New Model Commercial Arbitration Bill’ (2011)77(1) The International Journal of Arbitration, Mediation and Dispute Management 7, 10.


47

international arbitrations.37 Indeed, “strange interpretations of the Model Law risk placing Australia outof step with other Model Law countries.”38

Westport v Gordian

On 5 May 2012, the High Court of Australia handed down a decision in Westport Insurance Corporationv Gordian Runoff Ltd which was expected to resolve the apparent conflict between the Victorian Courtof Appeal in Oil Basins Ltd v BHP Billiton Ltd (2007) 18 VR 346 and the NSW Court of Appeal inGordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74, concerning the standard ofreasons required of an arbitrator under section 29 of the uniform Acts.

Section 29(1)(c) relevantly provides that:

(1)Unless otherwise agreed in writing by the parties to the arbitration agreement, thearbitrator…shall –

…

(c) include in the award, a statement of the reasons for making the award.

It is in substantially identical terms to Article 31(2) of the Model Law, which provides:

The award shall state the reasons upon which it is based, unless the parties have agreedthat no reasons are to be given or the award is an award on agreed terms…

The High Court decision provides an interesting counterpoint between the judicial treatment of theuniform Acts and the Model Law.

In Oil Basins, the Victorian Court of Appeal held that in the case before it (involving a high dollar,complex arbitration) the arbitral tribunal was required to provide reasons of a judicial standard. Bycontrast, the NSW Court of Appeal in Gordian held that insofar as the Victorian Court of Appealsuggested that an arbitrator’s duty to give reasons for an award was equivalent to a judge’s duty to givereasons, that decision was plainly wrong. Instead, the NSW Court of Appeal adopted the relatively lowstandard laid down by Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2)[1981] 2 Lloyds Rep 130:

all that is necessary is that the arbitrators should set out what, in their view of theevidence, did or did not happen and should explain succinctly why, in light of whathappened, they have reached their decision and what that decision is. That is all that ismeant by a ‘reasoned award’.

In doing so, the NSW Court of Appeal stressed the fundamental difference between arbitration andlitigation:

37 Clyde Croft, ‘Recent developments in arbitration in Australia’ (2011) 28(6) Journal of international arbitration 599, 600.38 Quoting the former Federal Attorney-General, Mr Robert McClelland, in his Opening Address to the ACICA International

Arbitration conference in Melbourne in December 2009. See Nick Rudge and Cameron A Miles, ‘More than an EmptyGesture: the Reversal of Eisenwerk’ (2011) 77(1) The International Journal of Arbitration, Mediation and DisputeManagement 43, 43.


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Though courts and arbitration panels both resolve disputes they represent fundamentallydifferent mechanisms of doing so. The court is an arm of the state; its judgment is an actof state authority, subject generally in a common law context to the right of appealavailable to parties. The arbitration award is a result of a private consensualmechanism intended to be shorn of the costs, complexities and technicalities often cited(rightly or wrongly, it matters not) as the indicia and disadvantages of curial decisionmaking (emphasis added).39

Reflecting the importance of the decision for arbitration in Australia (and the risk of collateral damageto the Model Law scheme), five parties appeared as amici curiae in the High Court: the Federal Attorney-General, ACICA, the Australian International Dispute Centre (‘AIDC’), IAMA and the CharteredInstitute of Arbitrators, Australia (‘CIArb’). In their written submissions, the amici curiae all arguedthat an arbitrator’s duty to give reasons for an award was not equivalent to a judge’s duty to give reasonsfor judgment.

When the matter came on before the High Court in early February 2011, the appellant conceded that theappropriate test to apply was the test in Bremer (which, of course, was the test applied by the NSWCourt of Appeal). Therefore, it was not necessary for the High Court to resolve the differences betweenthe Victorian and New South Wales Courts of Appeal.

Relevantly, the High Court held that:

(a) the reference in Oil Basins to reasons of a ‘judicial standard’ was an ‘unfortunate gloss’;40

(b) the statement by the English Court of Appeal in Bremer was apt to describe the content of theobligation in section 29 (1)(c) of the uniform Acts;41

(c) what is required by way of reasons in any given case will depend on the circumstances of the case;42

(d) whether Article 31 (2) of the Model Law is to be construed in a similar manner to section 29 (1)(c)of the CAA, alternatively requires something less in terms of the standard of reasons, was left fordetermination on another day.43

On the facts of the case (involving a complex reinsurance dispute), the High Court held that the arbitraltribunal had not met the test in Bremer because in the relevant respect the tribunal had merely stated itsconclusion and not the reasons for arriving at that conclusion.

39 Gordian (Allsop P) at [216].40 Gordian, [53] (French CJ, Gummow, Crennan and Bell JJ); [169] (Kiefel J).41 Gordian, [54] (French CJ, Gummow, Crennan and Bell JJ); [169] (Kiefel J).42 In this respect, the observation of the Victorian Court of Appeal in Oil Basins ([57]-[58]) that what is required to satisfy

section 29(1)(c) will depend upon ‘the nature of the disputes in the particular circumstances of the case’ was acceptedby the High Court as correct. A similar ‘proportionality’ test had been adopted by Croft J in Thoroughvision Pty Ltd v SkyChannel Pty Ltd [2010] VSC 139 at [54]-[58].

43 Gordian, [23] (French CJ, Grammow, Crennan and Bell J).


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In Gordian, the High Court addressed the juridical nature of arbitration, and its relationship with thecourt system. The majority said:

[19] [The] statutory provisions [under the uniform Acts] indicate that the makingof an award in arbitration proceedings is more than the performance of privatecontractual arrangements between the parties which yields an outcome which restspurely in contract. They also suggest the importance which the provision of reasons byarbitrators has for the operation of the statutory regime. That statutory regime involvesthe exercise of public authority, whether by force of the statute itself or by enlistment ofthe jurisdiction of the Supreme Court. It also, as explained later in these reasons,displays a legislative concern that the jurisdiction of the courts to develop commerciallaw not be restricted by the complete insulation of private commercial arbitration.44

[20] No doubt it is true to say that the provision of an award under the [uniformActs] lacks distinctive hallmarks of the exercise of judicial power, namely themaintenance of public confidence in the manner of its exercise and in the cogency orrationality of its outcomes, and the operation of the appellate structure and of the caselaw system. However, it is going too far to conclude that performance of the arbitralfunction is purely a private matter of contract, in which the parties have given up theirrights to engage judicial power, and is wholly divorced from the exercise of publicauthority (emphasis added).

The above observations do not, in my view, apply with equal force to the Model Law regime, which hasnow been adopted in the revised CAA. The new Act redefines the relationship between arbitration andthe courts. Similarly, in Lesotho Highlands Development Authority v Impregilo SpA (2006) 1 AC 221,Lord Steyn45 noted that the Arbitration Act 1996 (UK) had brought about radical changes:46

The [UK] Act has… given English arbitration law an entirely new face, a new policy,and new foundations… the Act embodies a new balancing of the relationships betweenparties, advocates, arbitrators and courts which is not only designed to achieve a policyproclaimed within Parliament and outside, but may also have changed their juristicnature (emphasis added).

Whilst arbitration under the Model Law may not be ‘purely a private matter of contract’, it is to a muchlarger degree insulated from intervention by the court. Indeed, section 5 of the revised CAA (whichimplements Article 5 of the Model Law) provides that:

44 This is no doubt a reference to s 38(5)(a)(ii) of the old uniform Acts which provides that leave to appeal must not begranted unless the court considers that ‘there is… strong evidence that the arbitrator… made an error of law and thatthe determination of the question may add, or may be likely to add, substantially to the certainty of commercial law’. Asimilar, although not identical, requirement is to be found in section 34A(3)(c)(ii) of the revised CAA which provides thatthe court must not grant leave to appeal unless it is satisfied that ‘the question [of law] is one of general publicimportance and the decision of the tribunal is at least open to serious doubt’. But s 34A does not apply unless theparties opt-in to judicial recourse on the grounds of error of law.

45 Quoting Lord Mustill and Stewart Boyd, Commercial Arbitration: 2001 Companion Volume to the Second Edition(Butterworths, 2001), preface.


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In matters governed by this Act, no court must intervene except where so provided bythis Act.

The Solicitor-General, who appeared for the Federal Attorney-General as amicus curiae in Gordian,sought to distinguish section 29 of the uniform Acts from Article 31 of the Model Law. He contendedthat Article 31 required no more than a statement of reasons to demonstrate whether the arbitrators hadaddressed the dispute referred to determination. The High Court refused to be drawn and said that theproper construction of the Model Law may be left for determination on another occasion.47 The relevantpoint here is that notwithstanding similarity in language between the uniform Acts and the revised CAAModel Law, it does not follow that the Model Law should be interpreted in the same manner. I will dealfurther with questions of interpretation of the revised CAA below.

Next, the dissenting judgment of Heydon J illustrates continuing judicial distrust of (or even antipathytowards) arbitration in certain judicial quarters.48 This is notwithstanding that there is a shift underwayin Australian courts towards greater judicial support and less judicial intervention in the arbitral process.49

In Victoria, we are fortunate to have a Chief Justice who is extremely supportive of arbitration. We alsohave a specialist Arbitration List (List G) presided over by a judge with international and domesticarbitration expertise (Croft J). Let me return to the remarks of Heydon J, who said:

The merits of arbitration

[111] The arbitration proceedings began on 15 October 2004 when Gordianserved points of claim. This appeal comes to a close seven years later. The attractionsof arbitration are said to lie in speed, cheapness, expertise and secrecy. It is not intendedto make any criticisms in these respects of the arbitrators, of Einstein J, or of the Courtof Appeal, for on the material in the appeal books none are fairly open. But it must besaid that speed and cheapness are not manifest in the process to which the parties agreed.A commercial trial judge would have ensured more speed and less expense. On theconstruction point it is unlikely that the arbitrators had any greater relevant expertisethan a commercial trial judge. Secrecy was lost once the reinsurers exercised theirright to seek leave to appeal. The proceedings reveal no other point of superiority overconventional litigation. One point of inferiority they reveal is that there have been fourtiers of adjudication, not three. Comment on these melancholy facts would be superfluous(emphasis added).50

46 At 230. 47 At [23].48 The history of judicial ambivalence towards arbitration is traced by Spigelman CJ and Mason P in Raguz v Sullivan

(2000) 50 NSWLR 236 at [47]-[48].49 Patrick A Keane, ‘Judicial Support for Arbitration in Australia’ (2010) 34 Australian Bar Review 1, 2. In similar vein,

Heydon J referred to the ‘unwisdom of consenting to arbitration’ in the later case of Michael Wilson & Partners Ltd vNicholls (2011) 86 ALJR 14 at [119].

50 Gordian at [111]. In similar vein, Heydon J referred to the “unwisdom of consenting to arbitration” in the later case ofMichael Wilson & Partners Ltd v Nicholls (2011) 86 ALJR 14 at [119].


The above remarks are unfortunate and, with respect, were wholly unnecessary. They do little to promoteAustralia’s reputation as an ‘arbitration-friendly’ jurisdiction.51 The observation about the relativeexpertise of the arbitral tribunal is highly debatable. The tribunal comprised an ex-Court of Appeal Judgeand two expert reinsurance lawyers. It is difficult to imagine a more expert panel to determine the disputeat hand. I will return to the delay and privacy points below.

Some Important Themes

Minimal court intervention

I have already touched on the minimisation of court intervention in the arbitral process under the ModelLaw regime, as now encapsulated in the revised CAA. In summary, court intervention is limited to:

(a) support of the arbitral process, inter alia, in the appointment of arbitrators,52 challenges toarbitrators,53 the grant and enforcement of interim measures,54 the enforcement of procedural ordersmade by the arbitral tribunal,55 and issuing subpoenas to give evidence and produce documents in aid ofan arbitration;56

(b) stay of court proceedings brought in the face of an arbitration agreement;57

(c) setting aside an award on limited grounds;58 and

(d) recognition and enforcement of arbitral awards.59

Judicial recourse against award

The greatest difference between the uniform Acts and the revised CAA is that the revised CAAsubstantially limits the capacity of the courts to set aside an arbitral award. Section 34 of the revisedCAA adopts Article 34 of the Model Law in respect of judicial recourse against arbitral awards. Article34 provides for judicial recourse against an arbitral award on (internationally) well-known limitedgrounds60 – namely, where:

(a) a party to the arbitration agreement was under some incapacity, or the agreement is not valid underthe governing law;

(b) a party to the arbitration agreement was not given proper notice of the appointment of an arbitratoror of the arbitral proceedings, or was otherwise unable to present his or her case;

51

51 See Alison Ross, ‘Australian High Court sets aside award’, Global Arbitration Review, 29 November 2011.52 Section 11.53 Sections 13-14.54 Section 17H. In contrast, the uniform Acts were silent on interim measures. 55 Section 19(b). Arbitrators under the revised CAA have much expanded powers, including powers to order security for

costs and interim measures (for example, interlocutory injunctions and Mareva orders).56 Section 27A.57 Section 8.58 Section 34 (and possibly 34A).59 Sections 35 and 36.60 See Redfern & Hunter on International Arbitration (Oxford University Press, 5th ed, 2009), [10.32].


(c) the award deals with a dispute not contemplated by, or not falling within, the terms of thesubmission to arbitration, or contains decisions on matters beyond the scope of the submission toarbitration;

(d) the composition of the arbitral tribunal, or the arbitral procedure, was not in accordance with theagreement of the parties, unless such agreement was in conflict with a provision of the Model Lawfrom which the parties cannot derogate, or, failing such agreement, was not in accordance withthe Model Law;

(e) the subject matter of the dispute is not capable of settlement by arbitration under Australian law;or

(f) the award is in conflict with the public policy of Australia.

The Issues Paper raised the question as to whether the CAA Model Bill should provide for furthergrounds of judicial review – in particular, ‘error of law’ and/or ‘serious irregularity’61 – and if so, thedetails of such provisions.

This was perhaps the most significant policy question to be grappled with in the drafting of the CAAModel Bill – in particular, whether there should there be a higher level of judicial supervision in respectof domestic arbitrations as opposed to international arbitrations, and if so, what the desired level ofrecourse against domestic arbitral awards should be. There is no uniform approach to this question inthe various overseas jurisdictions which have recently reformed their domestic arbitration laws.62

In the end, the CAA Model Bill introduced a new section 34A, which provides for parties to opt-in tojudicial review of domestic arbitral awards on the grounds of error of law (by way of supplementationof the limited grounds for judicial recourse contained in Article 34 of the Model Law, as reflected insection 34 of the CAA Model Bill).

Before section 34A of the revised CAA will apply, the parties must have agreed (either in the arbitrationclause, or at some later date)63 that an appeal may lie on the ground of error of law. Further, for an appealto lie, the court must grant leave to appeal.64 Section 34A(3) mandates that the court must not grantleave unless it is satisfied of a number of matters.

It is noteworthy that the new section 34A is not modelled on section 38 of the uniform Acts.65 In my

52

61 “Serious irregularity” is a concept enshrined in s 68 of the Arbitration Act 1996 (UK). It is equivalent to the concept of“misconduct” found in sections 42 and 44 of the old uniform Acts. “Misconduct” is traditionally slippery and difficult todefine: see McComish, Luttrell and A Miles, above n 36. The concept of “misconduct” was recently considered by theVictorian Court of Appeal in Oil Basins.

62 Albert Monichino, ‘Reform of the Australian Domestic Arbitration Acts – It’s Time’ (1999) 28(1) The Arbitrator & Mediator83, 93.

63 Not later than three months following the date on which the party instituting the appeal received the award: section34A(1)(a) and (6).

64 Section 34A(1)(b).65 In particular, the need to show a ‘manifest error of law on the face of the award’ (s 38(5)(b)(i) of the old uniform Acts)

has been jettisoned. Nevertheless, it is conceivable that the common law principles developed around the concept of“manifest error of law on the face of the award” will remain relevant in respect of the interpretation of s 34A of therevised CAA: see McComish, Luttrell and Miles, above n 36, 28.


view, it provides for a more limited review of an arbitral award on the ground of error of law:

(a) first, the court must assess whether the decision of the tribunal is ‘obviously wrong’, alternatively‘open to serious doubt’, on the basis of the findings of fact in the award.66 This would appear toshut out a side-door application to review an arbitral award on the basis of error of law constitutedby insufficient evidence supporting the findings of fact made in the award;

(b) secondly, the court, in the usual course, is expected to determine an application for leave to appealwithout a hearing – that is, ‘on the papers’;67 and

(c) thirdly, the setting aside of an award on the ground of error of law is a last resort. In the usualcourse, the defective award is to be remitted for reconsideration by the arbitral tribunal.68

While the exact scope of section 34A remains to be worked out by the courts, one thing is clear: the riskof parties to an arbitral award being sucked in to the judicial appellate vortex (alluded to by Heydon Jin his remarks above) is substantially diminished. Instead, the revised CAA promotes the finality ofarbitral awards.

Stay of court proceedings

The revised CAA also departs significantly from the uniform Acts in its approach to the stay of courtproceedings. Under section 53 of the old uniform Acts, the court had a discretion as to whether or notto stay court proceedings brought in the face of an arbitration agreement referring disputes to arbitration.By contrast, section 8 of the revised CAA adopts Article 8 of the Model Law and therefore brings thenew domestic arbitration regime in line with the position in the IAA. Thus, if the subject matter of acourt proceeding is the subject of an agreement to refer the matter to arbitration, the court is mandated,on the request of a party to the arbitration agreement,69 to stay the court proceedings and refer the partiesto arbitration. The limited exceptions are if the court finds the arbitration agreement null and void,inoperative, or incapable of being performed.70

The fact that there may be an overlap of issues with claims between one or other of the parties to thearbitration agreement and third parties – with the consequent risk of inconsistent findings arising out ofa multiplicity of proceedings – is no longer a relevant factor to be considered by a court in refusing astay of court proceedings in favour of arbitration.71

53

66 Section 34A(3)(c).67 Section 34A(5).68 Section 34A(8).69 Before the party files its first statement of the substance of the dispute – usually a defence.70 See, for example, Gilgandra Marketing Co-Operative Ltd v Australian Commodities & Marketing Pty Ltd [2010] NSWSC

1209.71 Contrast the position under s 53 of the old uniform Acts as outlined in Murrumbidgee Irrigation Limited v Goodwood

Services Pty Limited [2010] NSWSC 914 at [30]-[32], where the risk of inconsistent findings arising out of the multiplicityof proceedings was held to be a powerful factor in the exercise of the Court’s discretion whether or not to compeladherence to an arbitration agreement.


Interpretation of the revised CAA

The revised CAA introduces a new approach to interpretation of domestic arbitration legislation in thiscountry. In particular, section 2A implements Article 2A of the Model Law (which was introduced in2006).72

Section 2A of the revised CAA mandates that in interpreting the Act, regard should be had to the needto promote, so far as is practicable, uniformity between the application of the CAA to domesticcommercial arbitrations and the application of the Model Law (as given effect by the IAA) tointernational commercial arbitrations. In turn, the revised CAA (section 2A(3)) and the IAA (sections39 and 2D) contain interpretation provisions which require regard to the international origins of theModel Law.

In particular, section 2A(3) provides:

(3) … in interpreting this Act, reference may be made to the documents relating to theModel Law of –

(a) the United Nations Commission on International Trade Law, and

(b) its working groups for the preparation of the Model Law.

Accordingly, it is highly desirable for Australian superior courts to interpret the revised IAA and CAAin light of jurisprudence in other nation-states which have adopted the Model Law:

it is critically important that the IAA and CAA are not treated as standalone pieces oflegislation devoid of the international jurisprudence… The Model Law and the NewYork Convention, are... instruments which have been drafted internationally and whichwere intended by the drafters to apply to international disputes, between entities fromdifferent countries… It is beneficial to all countries which have adopted the ModelLaw… and the New York Convention if a harmonised system is maintained. In apractical sense, this means that Australian courts should have regard to decisions ofoverseas courts applying and interpreting the Model Law. In my view, the CAA and theIAA encourage this approach, as the interpretative provisions specifically direct judgesto have regard to the international origins of the provisions applied by the IAA and tothe desirability of the uniform application of these provisions internationally. The sameresult is contemplated with respect to the Model Law provisions adopted in the CAAprovisions.73 (emphasis added)

An illustration of the proper approach to the interpretation of the revised CAA can be found in thejudgment of Allsop P in Gordian, where his Honour traced the international jurisprudence in relation toArticle 31 of the Model Law (which his Honour treated as the inspiration for section 29 of the olduniform Acts).74

54

72 See Binder, above n 30, 47-49. 73 Clyde Croft, ‘The Development of Australia as an Arbitral Seat – A Victorian Supreme Court Perspective’ (Paper

presented at the ICCA 50th Anniversary Conference, Geneva, 19-20 May 2011) 29–30.74 [2010] NSWCA 57, [207]-[213].


For legal practitioners, assistance in interpretation of the Model Law can be found in Dr Binder’sauthoritative work,75 as well as the authoritative work of Howard Holtzmann and Joseph Neuhaus, ‘AGuide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History andCommentary’.76Also, reference should be made to relevant case law from other Model Law jurisdictions,including case law reported by UNCITRAL in its Case Law on UNCITRAL Texts (CLOUT) database.77

And last, but not least, there is the excellent recent work of Professor Doug Jones, ‘CommercialArbitration in Australia’.78

Med-Arb

Section 27 of the uniform Acts empowered an arbitrator to act as ‘a mediator, conciliator or a non-arbitralintermediary’, provided he was authorised to do so. Likewise, section 27D of the revised CAA containsa provision which empowers an arbitrator to act as a mediator or conciliator, if the arbitration agreementso provides, alternatively if each party later consents in writing to the arbitrator so acting.

Section 27D expressly provides that an arbitrator, when acting as a mediator, may communicateseparately with the parties (section 27D(2)(a)). In other words, it permits the arbitrator to engage inprivate mediation sessions. However, if the mediation is unsuccessful, the arbitrator cannot continuewith the arbitration unless all of the parties to the arbitration provide their written consent to him doingso (section 27D(4)). The arbitrator must, before proceeding with the arbitration proceeding, first discloseto all other parties in the arbitration proceedings any confidential information he (or she) obtained fromanother party during the mediation – in particular, during any private sessions (section 27D(7)).79 Duringthe passage of the Commercial Arbitration Act 2010 (NSW), this disclosure requirement engenderedconsternation by some commentators on the basis that it undermined the confidentiality of mediations.80

Section 27D serves as a supplement to the Model Law. There are divergent views within the arbitrationcommunity as to the utility of the provision. Australia is a common law jurisdiction, where parties andpractitioners are highly suspicious of the notion that a judge or arbitrator may engage in privatecommunications with parties before proceeding to determine a dispute involving them. Whilst thepractice of a neutral party moving seamlessly between the role of arbitrator and mediator may be acommonly accepted practice in China or Japan, I doubt very much whether it will ever attain any tractionin Australia.81 Likewise, whilst Singapore and Hong Kong (both common law jurisdictions) havearbitration legislation which, for some time, has allowed arbitrators to engage in private sessions withthe parties pursuant to an arbitration-mediation (Med-Arb) process, anecdotal evidence reveals that there

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75 See above n 30.76 (Kluwer Law International, 1989).77 The database may be accessed via the internet at <http://www.uncitral.org/clout/showSearchDocument.do>.77 (Lawbook Co, 2011).79 This requirement appears to derive from section 17 of the International Arbitration Act (Cap 143A) (Singapore). 80 See New South Wales, Parliamentary Debates, Legislative Council, 9 June 2010, concerning the Commercial Arbitration

Bill 2010 (NSW). See also Standing Committee on Uniform Legislation and Statutes Review, Parliament of WesternAustralia, Report 67: Commercial Arbitration Bill 2011 (2011).

81 For a different view, see Alan Limbury, ‘Handling the Combined Mediation and Arbitration Process under s 27D of theCommercial Arbitration Act 2010 (NSW)’ (2011) 30(2) The Arbitrator & Mediator 11.


has been little to no uptake in those jurisdictions of such a process82 (except where the parties, or at leastone of them, come from mainland China).

In my view, the vice in section 27D is that it permits the arbitrator, when acting as a mediator, to meetprivately with the parties. On the other hand, I have no difficulty with the concept that an arbitratorshould be empowered to promote settlement of disputes referred to arbitration by way of a conciliationprocess,83 with both parties present at all times.84

Future Challenges

Confidentiality of court proceedings

Sections 27E to 27I of the revised CAA introduce an elaborate confidentiality regime. This regime issubstantially identical to the new regime contained in sections 23 to 23G of the IAA, except that it applieson an opt-out basis (as opposed to an opt-in basis). That is, unless parties otherwise agree, arbitrationproceedings under the revised CAA are inherently confidential (subject to defined exceptions). This isa very welcome reform as, at the domestic level, confidentiality is the most obvious advantage thatarbitration offers in comparison with litigation.85 Again, this statutory confidentiality regime occurs byway of supplementation of the Model Law.

The new confidentiality provisions derive from sections 14B to 14E of the Arbitration Act 1996 (NZ).86

The New Zealand provisions, however, go further. In particular, sections 14F to 14I of the New ZealandAct deal with the conduct of arbitration-related matters in court. Broadly speaking, the New ZealandAct contemplates that:

(a) arbitration-related proceedings in court shall proceed in open court unless the court otherwiseorders;

(b) the court may make an order that an arbitration-related proceeding in court be conducted in privateif it is satisfied that the public interest in having the proceeding conducted in public is outweighedby the interest of any party to the proceeding in having the whole or any part of the proceedingconducted in private;

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82 That is, a Med-Arb process involving private sessions with the parties.83 By a ‘conciliation’ process, I mean a process by which a neutral attempts to facilitate resolution of the dispute with both

parties present. I do not mean a process by which a ‘neutral’ necessarily suggests the manner of resolving the dispute. 84 As permitted by the Rules of the Centre for Effective Dispute Resolution (‘CEDR’) published in about November 2009.

See <http://www.cedr.com/about_us/arbitration_commission>.85 By contrast, at the international level, the most obvious advantage of arbitration over litigation is superior enforcement of

arbitral awards by reason of the operation of the New York Convention.86 Indeed, the influence of the New Zealand legislation was acknowledged by the Australian Federal Parliament when it

amended the IAA in 2010. See Revised Explanatory Memorandum, International Arbitration Amendment Bill 2010 (Cth),at para 153.


(c) in considering an application that the whole or any part of an arbitration-related proceeding beconducted in private, the court must consider the privacy and confidentiality of the arbitralproceedings.

By contrast, the arbitration Acts in Hong Kong87 and Singapore88 contemplate that arbitration-relatedproceedings in court shall be heard otherwise than in open court, thus protecting the confidentiality ofthe underlying arbitration.

The IAA and the revised CAA are silent on the question of whether arbitration-related proceedings incourt are to be held in open court or in private. The Arbitration Act 1996 (UK) is similarly silent on thisquestion. However, through a combination of Rules of Court and case law, the confidentiality of thearbitral process has been maintained in the United Kingdom.89

Rule 39.2 of the Civil Procedure Rules 1998 (UK) enshrines the principle of ‘open justice’.90 SpigelmanCJ (as he then was) described this principle as ‘one of the most pervasive axioms of the administrationof common law systems.’91 In Russel v Russel 92 Gibbs J (as he then was) said:

It is the ordinary rule of the Supreme Court, as of the other courts of the nation, thattheir proceedings shall be conducted ‘publicly and in open view’… The fact that courtsof law are held openly and not in secret is an essential aspect of their character… Torequire a court invariably to sit in closed court is to alter the nature of the court. Ofcourse there are established exceptions to the general rule that judicial proceedings shallbe conducted in public; and the category of such exceptions is not closed to theParliament. The need to maintain secrecy or confidentiality, or the interests of privacyor delicacy, may in some cases be thought to render it desirable for a matter, or part ofit, to be held in closed court. (emphasis added)93

While there are exceptions to the general principle, and the category of such exceptions is not closedand cannot be prescriptively identified, generally the exceptions apply where they are necessary to ensurethat the administration of justice is not frustrated.94

Notwithstanding Rule 39.2, Rule 62.10 of the Civil Procedure Rules 1998 (UK) (see below) providesan exception in the case of arbitration-related matters. In particular, the court is granted a generaldiscretion to order whether an arbitration-related matter be heard in public or private. Subject to that

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87 See section 16 of the Arbitration Ordinance 2010 (Hong Kong).88 See section 56 of the Arbitration Act (Cap 10) (Singapore), which regulates domestic arbitration. See also section 22 of

the International Arbitration Act (Cap 143A) (Singapore), which regulates international arbitration. 89 In England, unlike Australia, the courts have held that there is an implied duty of confidentiality in relation to arbitral

proceedings. See Dolling Baker v Merrett [1991] 2 All ER 890. Contrast Esso Australia Resources Ltd v Plowman (1995)183 CLR 10, which held that commercial arbitrations were private, but not inherently confidential.

90 In particular, Rule 39.2(1) provides that ‘the general rule is that a hearing is to be in public.’ Rule 39.2(3) then providescertain exceptions to this general rule.

91 JJ Spigelman AC, ‘The principle of open justice: a comparative perspective’ (address to the Media Law ResourceCentre conference, London, 20 September 2005) <http://www.austlii.edu.au/au/journals/UNSWLJ/2006/19.pdf>.

92 (1976) 134 CLR 495.93 At 122-12394 ABC v D1 & Ors Ex Parte The Herald & Weekly Times Limited [2007] VSC 480 at [66]; Anon 2 v XYZ [2008] VSC 466 at


general discretion, the rule anticipates that other than with respect to the determination of a preliminarypoint of law or an appeal on a question of law arising out of an award, the starting point is that all otherarbitration matters will be heard in private.

Moreover, English case law has gone further in relation to the publication of court judgments in relationto arbitration matters. In City of Moscow v Bankers Trust Co95 Mance LJ (as he then was), with whomCarnwath LJ agreed, held that while there was a presumption in favour of publication of court judgments,this should be done in a way that avoided revealing confidential information which may prejudice oneor more of the parties (for example, by masking sensitive facts and only revealing issues that are crucialto the decision).96 This case reinforces the concept of confidentiality in relation to arbitration-relatedmatters by extending it to court judgments and not simply the conduct of court proceedings.

Returning to the Australian position, as far as Victoria is concerned, section 18 of the Supreme CourtAct 1986 (Vic) confers a discretion on the Supreme Court of Victoria to, inter alia, order that:

(i) the whole or any part of a proceeding be heard in closed court; or

(ii) the publication of a report of the whole or any part of a proceeding be prohibited,

in the circumstances mentioned in section 19 which, relevantly, include if in the opinion of the court itis necessary to do so in order not to prejudice the administration of justice.97

Regardless of section 18, the Supreme Court of Victoria (and other like superior courts) has an inherentjurisdiction to so order.98 Nevertheless, the test required by sections 18-19 does not differ in any materialway from that required in exercising the inherent powers of the Court.99

Therefore, irrespective of whether the revised CAA or the IAA expressly provide for arbitration-relatedproceedings to be conducted otherwise than in open court, Australian superior courts have undoubtedinherent jurisdiction to so order. It remains to be seen how Australian courts approach this question.

The recent New South Wales Court of Appeal decision of Rinehart v Welker100 (Bathurst CJ, McColland Young JJA) is somewhat disheartening in this regard. The proceeding concerned a family disputebetween a wealthy woman (‘R’) and her four children. The parties were all members of a prominentWestern Australian family. The children complained of R’s conduct as trustee under a deed of settlement.They commenced proceedings in the New South Wales Supreme Court. The dispute resolution clausein the deed provided that disputes between the parties ‘under this deed’ shall be determinedconfidentiality by private mediation and/or arbitration. R sought a suppression order pursuant to section7 of the Court Suppression and Non-Publication Orders Act 2010 (NSW) on the basis that the order was

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[14]; News Digital Media Pty Ltd v Mokbel [2010] VSCA 51 at [40].95 [2005] QB 207.96 At [41].97 Lew v Priester (No 2) [2012] VSC 153 at [11]-[14].98 Re a Former Officer of the Australian Security Intelligence Organisation [1987] VR 875 at 876; Landsal Pty Ltd (in liq) v

REI Building Society (1993) 41 FCR 421.99 ABC v D1 & Ors Ex Parte The Herald & Weekly Times Limited [2007] VSC 480 at [38].100 [2011] NSWCA 403.


necessary to prevent prejudice to the proper administration of justice.101

A suppression order was granted by the judge at first instance.102 He accepted the proposition thatpublication of the proceeding would negate the purpose of the confidentiality provision in the deed andwould circumvent the rights of R to have disputes under the deed resolved by confidential mediation orarbitration.103 Otherwise, the administration of justice would be prejudiced.

The suppression order was discharged by the New South Wales Court of Appeal.104 Bathurst CJ andMcColl JA (‘the majority’) acknowledged the importance of party autonomy in modern arbitration.105

They said that it was by no means clear that the provisions of the revised CAA applied.106 Further, if therevised CAA applied, it was not clear why this would in itself lead to the conclusion that there would beprejudice to the administration of justice if the suppression order was not made.106 In this regard, therights of the parties to select private arbitration and keep matters confidential was not determinative asto whether supervisory proceedings should be heard in open court.108 Rather, it was only a relevant factorto be considered.109

The majority noted that the plaintiff beneficiaries made serious allegations of breach of trust and soughtorders invoking the statutory power of the court to remove the trustee. They noted that ‘the properconduct of trustees is a matter which warrants close public scrutiny’ and that this was a proper factor totake into account in determining whether a suppression order was necessary.110

Young JA delivered a separate judgment agreeing with the majority. Like the majority, Young JA agreedthat the judgment under review did not give appropriate regard to the principle of open justice and gavetoo much emphasis to contractual confidentiality.

At [119] Young JA said:

[T]he traditional way of stopping court proceedings pending arbitration is, as in thepresent application, applying for a permanent stay. Even if the reason why the applicantcontracted for arbitration was confidentiality, as far as I am aware, such applicationsfor stay were never heard in camera (emphasis added).

With respect, the above bolded proposition is not strictly correct in so far as the United Kingdom positionis concerned. Rule 62.10 of the Civil Procedure Rules 1998 (UK) relevantly provides:

(1) The court may order that an arbitration claim be heard either in public or in private.

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101 See section 8(1)(a).102 Welker & Ors v Rinehart [2011] NSWSC 1094.103 At [17].104 Rinehart v Welker [2011] NSWCA 403 (Bathurst CJ, McColl & Young JJA).105 At [45].106 At [62]. There was an argument that the seat of the arbitration was Western Australia which does not yet have a

domestic arbitration Act in equivalent terms to the revised CAA.107 At [63].108 At [51] and [64].109 At [45].110 At [52].


(2) Rule 39.2 does not apply.

(3) Subject to any order made under paragraph (1) –

(a) the determination of –

(i) a preliminary point of law under section 45 of the 1996 Act; or

(ii) an appeal under section 69 of the 1996 Act on a question of law arisingout of an award,

will be heard in public; and

(b) all other arbitration claims will be heard in private. (emphasis added)

Rule 62.2(1) defines ‘arbitration claim’ as meaning, relevantly:

(a) any application to the court under the 1996 Act;

…

(d) any other application affecting –

(i) arbitration proceedings (whether started or not); or

(ii) an arbitration agreement.

Section 9 of the Arbitration Act 1996 (UK) provides for the stay of proceedings in the face of anarbitration agreement. It follows that in the United Kingdom (at least), contrary to the view expressedby Young JA, the ‘starting point’ is that applications for stay of proceedings in the face of an arbitrationagreement are to be heard in private.111

In conclusion, one would hope that Australian courts adopt Rules of Court that follow the precedentcontained in the Civil Procedure Rules 1998 (UK),112 thus giving parties the ability to preserve one ofthe main perceived advantages of arbitration – namely, confidentiality. It would be a shame if theadvantages brought about by the imposition of a statutory duty of confidentiality were to be eroded bythe hearing of arbitration-related matters in open court (as alluded to by Heydon J in his remarks referredto above).

Threat of proportionate liability reform

The future of domestic arbitration in Australia is threatened by proportionate liability reforms which arepresently under consideration. Proportionate liability applies, at both the federal and State and Territorylevels, to varying extents by way of a patchwork of legislation,113 often conflicting in respect of criticalissues.114

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111 “In private” is equivalent to ‘in camera’ – see City of Moscow at [28]. As for the use of the expression ‘starting point”, seeCity of Moscow at [36]. See Fulham Football Club (1987) Ltd v Richards and another [2011] 2 WLR 1055 at [6]-[7], perVos J: application for a stay under s 9 of the Arbitration Act 1996 (UK), held in private as comtemplated by CPR Rule 62.

112 The Judicial Liaison Committee (established in October 2010) is charged with the responsibility of promoting uniformityin respect of the Rules of Court of Australian superior courts in relation to international arbitration matters.

113 See the Civil Liability Act 2002 (NSW), Part 4; Wrongs Act 1958 (Vic), Part IVAA; Civil Liability Act 2002 (WA), Part 1F;Civil Liability Act 2003 (Qld), Part 2; Civil Law (Wrongs) Act 2002 (ACT); Proportionate Liability Act 2005 (NT); CivilLiability Act 2002 (Tas), Part 9A; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA),Part 4.

114 Such as whether the putative wrongdoer must be joined as a party to the proceeding before proportionate liability reliefmay be availed of, alternatively whether contracting-out of the proportionate liability regime is available.


In September 2011, the Standing Council on Law and Justice (‘SCLJ’) (formerly SCAG) releasedConsultation Draft Model Proportionate Liability Provisions and an accompanying Regulation ImpactStatement.115 The commendable, underlying purpose of the new provisions is to promote greater nationalconsistency of approach towards proportionate liability.

Relevantly, paragraph 4.1.1.9 of the Impact Statement raised the question as to whether proportionateliability legislation should apply to arbitration proceedings. The Impact Statement correctly stated thatthe issue of whether proportionate liability legislation applies to arbitrations is not specifically dealtwith under current legislation enacted across the country.

In my view, the current position is that proportionate liability does not apply to arbitrations. The issuehas only been considered by one court – namely, the Full Court of the Supreme Court of Tasmania inAquagenics Pty Ltd v Break O’Day Council (2011) 26 BCL 263, in the context of the Civil Liability Act2002 (Tas). Under the Tasmanian Act, ‘court’ is defined to include ‘tribunal’, and there is no need tojoin a putative wrongdoer before seeking proportionate liability relief (s 43B(4)). The Full Courtexpressed the view (in obiter) that the proportionate liability provisions of the Tasmanian Act did notapply to arbitrations.116 The view that proportionate liability relief does not apply to arbitrations isstronger in jurisdictions like Victoria, where proportionate liability relief cannot be availed of unless theputative wrongdoer is joined as a party to the proceeding.117

In particular, the better view is that where proportionate liability legislation defines a ‘court’ to mean a‘tribunal’,118 this is meant to refer to a statutory tribunal (such as the Victorian Civil and AdministrativeTribunal (‘VCAT’)) and not a private arbitrator or tribunal.119

Thus, the Consultation Model Proportionate Liability provisions make proportionate liability apply toarbitrations (where it does not presently do so). This is proposed to be achieved by defining ‘court’ toexpressly include an ‘arbitrator’. The Impact Statement asserts that there are strong policy argumentsthat proportionate liability legislation should apply to arbitrations, yet it does not articulate any. Indeed,there are strong policy arguments to the contrary.

Proportionate liability legislation provides an incentive to a plaintiff in court proceedings, who is facedwith a proportionate liability defence, to join putative concurrent wrongdoers who are responsible forthe same damage, thereby avoiding a multiplicity of proceedings. This is not, however, possible inarbitration. The arbitrator’s jurisdiction is founded on the consent of the parties. The arbitrator has nojurisdiction to join third parties and to make an award against them (absent the consent of therespondent120 and the third party). Indeed, the Impact Statement recognises that ‘arbitrators generallycannot make a binding award against a concurrent wrongdoer who is not a party to the arbitrationagreement.’121

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115 Available at <http://www.lawlink.nsw.gov.au/lawlink/SCAG/ll_scag.nsf/pages/scag_consultdraftmodel>.116 At [26]-[33].117 Section 24AI(3) of the Wrongs Act 1958 (Vic).118 See, for example, section 24AE of the Wrongs Act 1958 (Vic).119 See David Levin QC, ‘The Choice of Dispute Resolution and its Implications for Proportionate Liability Claims’ (2011) 15

The Australian ADR Reporter 53-55.120 ‘Claimant’ and ‘respondent’ are used here to identify, respectively, the party initiating the arbitration and the party

responding to the claim brought by arbitration.121 That is, absent consent of the parties to the arbitration and also the third party.


If proportionate liability legislation were to apply to arbitrations, this would have the unfortunate effectof increasing cost and delay in arbitrations (in many cases) by substantially expanding the issues to bedetermined in the arbitration. Furthermore, a claimant faced with a proportionate liability defence maywell be driven to discontinue the arbitration and to commence separate court proceedings against therespondent and the other putative wrongdoers. Indeed, the application of proportionate liability toarbitration may well result in less referrals by domestic parties of disputes to arbitration.

The recent reforms to domestic arbitration were designed to make domestic arbitration a crediblealternative to litigation before the courts. Arbitration is meant to be different to litigation.122 Just becauseproportionate liability relief applies to court proceedings does not mean that it should apply toarbitrations. The application of proportionate liability legislation to arbitrations, as contemplated in theImpact Statement and the Consultation Model Proportionate Liability provisions, will, in my view, undoa lot of SCAG’s good work.

The proposed application of proportionate liability legislation to arbitrations may also have an adverseimpact on the concerted efforts to attract international arbitrations to Australia. The proposedamendments do not affect only domestic arbitration. They also apply (or at least, in the absence clarifyingprovisions, there is uncertainty whether they apply) to international arbitrations seated in Australia.123

For foreign parties, this might be described as an ‘unwanted legal surprise’.124

For similar reasons, the leading arbitral institutions in Australia (ACICA, CIArb and IAMA) opposedthe proposal to make proportionate liability legislation expressly referrable to arbitrations seated inAustralia.125 I sincerely hope that SCAG (as it was previously known) will take heed of the concernsexpressed by Australia’s leading arbitral institutions. If not, the future of arbitration in Australia isimperilled.

Removing unnecessary obstacles

If arbitration is to thrive in Australia, unnecessary roadblocks need to be removed. One such roadblockto be found is section 14 of theDomestic Building Contracts Act 1995 (Vic) (‘DBCA’), which provides:

Any term in a domestic building contract or other agreement that requires a disputeunder the contract to be referred to arbitration is void.126

The expression ‘domestic building contract’ is defined in section 3. In broad terms, it essentially meansa contract to carry out ‘domestic building work’. In turn, the expression ‘domestic building work’ isdefined by the operation of sections 5 and 6 of the Act.

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122 Indeed, arbitrators have in the past been criticised for mimicking court procedures.123 Proportionate liability provisions may apply to an international arbitration by virtue of the fact that they may be

considered to be a mandatory law of the seat. They alternatively may apply as part of the governing law of thearbitration if the governing law selected by the parties is Australian law.

124 See Binder, above n 30, 13.125 Which would include international as well as domestic arbitrations.126 A similar provision appears in section 7C of the Home Building Act 1989 (NSW).


The DBCA distinguishes between the referral of existing and future disputes to arbitration. It does notprohibit existing disputes from being referred to arbitration by the agreement of the parties.127

Nonetheless, by the time a dispute crystallises, parties are often not able to agree on anything much atall, let alone the appropriate dispute resolution mechanism.

The DBCA applies alike to a $10,000 kitchen renovation or the construction of a $10,000,000 luxuryhome. In both cases, it prohibits reference of future disputes under the relevant building contract todetermination by arbitration.128

Like provisions are to be found in sections 7C and 16DC of the Home Building Act 1989 (NSW),129

The DBCA has uncertain application to:

(a) contracts between builders and developers (at times referred to as ‘Developer Contracts’) for, say,construction of a multi-storey apartment development; and

(b) mixed-use developments, involving a combination of apartments (or houses) and commercialspace.130

There is no warrant, in my view, for Parliament to intervene to remove the choice by sophisticated partiesto resolve their disputes by arbitration. A person who can afford to enter into a multi-million dollarcontract for the construction of a home (a fortiori, the construction of a multi-million dollar, multi-storeyapartment dwelling or mixed-use development) can be reasonably expected to protect his or her owneconomic interests. They may well have legitimate reasons to arbitrate their dispute as opposed to havingit determined by VCAT. This is especially so under the new arbitral regime, which provides forconfidentiality of the arbitral process, something which is not obtained by litigating in VCAT.

If one goes back to the parliamentary debates, one can readily ascertain that the rationale for theintroduction of the prohibition in section 14 was a concern to protect consumers from what waseffectively mandatory arbitration – that is, builders inserting arbitration clauses in building contractswhere arbitrations were presided over by individuals perceived to be partisan to builders’ interests.131

Indeed, IAMA did not escape the wrath of certain parliamentarians. Thus, in the Victorian LegislativeCouncil, Mr Gerald Ashman stated that IAMA “needs to stand condemned for the way it has allowedthe arbitration process to be bastardised by builders.”132

Section 14 of the DBCA133 is a blunt legislative response to the perceived mischief. It overreaches in itsresponse.

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127 See Swintons Pty Ltd v Age Old Builders Pty Ltd (2005) 13 VR 381.128 On the other hand, the DBCA does not prohibit referral of existing disputes to determination by arbitration.129 Section 7C pertains to ‘residential building work’ whilst section 16DC relates to contracts for the supply of kit homes.130 Jane Hider, ‘Domestic Building Contracts Act 1995: Uncertainty reigns for developers and builders’ (2009) 34 BDPS

News 4.131 See Victoria, Parliamentary Debates, Legislative Council, 15 November 1995, 359 (Robert Ian Knowles, Minister for

Housing); see also Explanatory Memorandum, Domestic Building Contracts Act 1995 (Vic), 1: ‘The Act will ensurefairness to builders and consumers alike’.

132 Victoria, Parliamentary Debates, Legislative Council, 22 November 1995, 756 (Gerald Barry Ashman).133 And its counterpart provisions in NSW and QLD, ss 7 and 16DC of the Home Building Act 1989 (NSW) and s 9 of the

Domestic Building Contracts Act 2000 (QLD).


Twenty years ago, budding arbitrators and arbitration practitioners in Victoria ‘cut their teeth’ on domesticbuilding disputes. With the conferral of exclusive jurisdiction on VCAT in respect of such disputes, theculture of arbitration in Victoria has slowly withered away. It is time to turn this around in high-dollardomestic building disputes.

I propose that section 14 of the DBCA134 be amended to limit the prohibition against referring futuredisputes under domestic building contracts to arbitration where the contract price is (say) less than $2million. Thus, where the contract price exceeds $2 million, parties should be free to refer future disputesto arbitration, if they so wish.135

Conclusion

The introduction of the revised CAA heralds a new era for arbitration in Victoria. It represents a ‘comingof age’ with the adoption of an internationally accepted Model Law regime. This new regime promotesparty autonomy and minimises judicial intervention in the arbitration process. The powers of arbitratorsare substantially enlarged, thus enabling the achievement of procedural efficiencies by deployment ofinnovative procedures. The new Act promotes the finality of awards and provides for judicial supervisionof the arbitration process with a ‘light touch’. By way of supplementation of the Model Law, the revisedCAA makes domestic arbitrations confidential. This will represent a major attraction to many commercialparties. All in all, the foundations for the revival of domestic arbitration in Victoria have been laid.

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134 And its counterpart provisions in NSW and QLD. The prohibition in the QLD Act applies to a ‘regulated contract’, whichis defined to be a domestic building contract for which the contract price is more than the relatively meagre amount of$3,300 – see section 9 and Schedule 2 of the Domestic Building Contracts Act 2000 (Qld).

135 Another roadblock is to be found in section 89(4) of the Retail Leases Act 2003 (Vic), which provides that a retailtenancy dispute, other than an application for relief against forfeiture or a claim for unconscionable conduct, is notjusticiable before any other tribunal (that is, other than VCAT), a court, or a person acting judicially. The latter wouldinclude an arbitrator. See also section 42A of the Retirement Villages Act 1986 (Vic), which states that any provision in a‘residence contract’ or a ‘management contract’ (both defined in section 3) which provides for a process of dealing withmanagement complaints or resident disputes through arbitration, is void. At the Federal level, see section 43(1) of theInsurance Contracts Act 1984, which provides that where a provision included in a contract of insurance has the effectof requiring disputes in connection with the contract to be referred to arbitration, such provision is void. This applies toreferrals of future (as opposed to existing) disputes to arbitration


Selecting a Workplace ADR process:

Three Australian case studiesDr Penny Webster1

Abstract

Many managers have firmly held beliefs about the nature of conflict and appropriate approaches topreventing and managing conflict. Recent research has found that managers often view conflict in theworkplace negatively and this perspective influences the resolution strategies they select. This paperexplores the implementation of workplace grievance resolution in three Australian organisations. Agrounded theory approach contextualised the data from in-depth semi-structured interviews within cases.Participants included alternative dispute resolution (ADR) program designers, employees who wereselected to resolve the grievances and employees who lodged grievances. The findings revealed managershad a low level of understanding of the nature of conflict, no clear concept of justice processes such asprocedural or natural justice and limited knowledge of ADR processes and their potential applications.Appellants reported high levels of negative collateral damage to their health and well-being, and theircareer prospects. Recommendations arising from this study include training methods that re-orientateapproaches to conflict. Positive changes in organisational attitudes to conflict will open the way to theadoption and the adaptation of innovative conflict and grievance resolution processes.

Key words: workplace conflict, workplace grievances, natural justice, procedural justice

Introduction and research problem

The modern workplace is a complex environment subject to the changing demands and expectations ofthe workforce and society. These expectations included standards of behaviour that proscribe bullyingor harassment. Associated with this are expectations that managers will resolve or minimise interpersonalproblems arising between their staff members. This is a complex, fraught and time consuming task, withup to 20% of a manager’s time spent dealing with conflict amongst staff.2 Managers need to makejudgments, often outside their professional expertise, about the nature and causes of these interpersonalproblems. A manager will need to decide ‘is this a conflict between two employees or bullying behaviour?A mistake at this point, by implementing the right solution to the wrong problem, may result in anescalation of hostile behaviour leading to significantly greater negative outcomes, in terms of the healthand well-being for the individuals involved, the loss of productivity or the payments of large

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1. Dr Webster is a Conciliator at the Victorian Accident Compensation Conciliation Service while on leave from RMITUniversity. A member of IAMA since 2003, she has been an Instructor for the Practitioners Certificate in Mediation since2006 and has served on the Victorian Chapter.

2. Thomas, K. and W. Schmidt, A Survey of Managerial Interests with Respect to Conflict. Academy of ManagementJournal, 1976. 19(2): p. 315-318.


compensation packages.3-5 The increased level of community awareness of the costs of workplacebullying has lead the Victorian State parliament to introduce the Crimes Amendment (Bullying) Bill 2011,which if adopted will make bullying a criminal offense.

Australian contemporary workplaces include employees from diverse backgrounds, this diversity ofgender, ethnic background and (dis)ability, changes the workplace landscape in a variety of ways. Forinstance, there are increased opportunities for miscommunication to occur, arising from stereotyping orinadequate grasp of the common language. Another example of change is the significantly increasedproportion of women in the workforce which has led to changes in expectations regarding workplaceflexibility and shifts in family work priorities. Diversity brings changing organisational responsibilities;managers are expected to have the necessary interpersonal and communication skills to successfullyhandle this complexity and the inevitable conflicts that arise.

At the same time there is evidence of work intensification, which is also associated with changes inperceptions of group belonging and an increased reliance on employment status for whole of life well-being. Employee flexibility has increased such that jobs are no longer considered to be for life; peopleare constantly retraining or changing work patterns to meet family responsibilities. Increased levels ofeducation and use of personal technology lead to a more sophisticated workforce who demand respectand higher levels of participation in the workplace.

There is a clear liability for organisations to provide a workplace that is both psychologically andphysically safe. In Australia, the provision of a safe workplace is an absolute responsibility underOccupational Health and Safety (OH&S) regulation and standards separate from the employmentcontract. Additionally, the employment contract goes beyond the written documents and includes termsimplied by custom and practice in an industry.6 For instance, the role of independent conciliation andarbitration to achieve justice and fairness is considered to be part of the psyche of Australian workplaces.7

However, the management of workplace grievances, especially the internal complaints about bullyingand harassment, is frequently poorly handled by organisations. Researchers of workplace bullying havehighlighted the lack of effective grievance resolution systems in organisations. Some claim that appealingto the organisation’s grievance resolution system can be a further traumatizing event for the target ofbullying behaviour.8 Indeed this view has much anecdotal support. In their review of grievance resolutionprocesses in the USA, Bemmels and Foley (1996) argued that it was timely to utilize a subjectiveapproach to exploring the effectiveness of internal grievance resolution.

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3. Webster, P.J., Why are expectations of grievance resolutions systems not met? A multi-level exploration of three casestudies in Australia, in Department of Managment & Marketing. 2010, The University Of Melbourne: Melbourne. p. 321.

4. Tajfel, H., Human Groups and Social Categories: Studies in Social Psychology. 1981, Cambridge: Cambridge UniversityPress.

5. Rahim, M.A., Toward a Theory of Managing Organisational Conflict. International Journal of Conflict Management, 2002.13(3): p. 206-235.

6. Owens, R. and J. Riley, The Law of Work. 2007, South Melbourne: Oxford University Press.7. McCallum, R., Industrial Citizenship, in Labour Market Deregulation: Rewriting the Rules, J. Isaac and R. Lansbury,

Editors. 2005, Federation Press.8. Leymann, H., Nar livet slar till (When Life Strikes). 1989, Stockholm: Natur och Kultur.


This research seeks a better understanding of organisational attempts to resolve grievances about bullyingand harassment in the modern Australian workplace. This broad question is designed to allow newperspectives and new understandings of the problems associated with grievance resolution processes inorganisations to emerge.

Methodology and case studies

Research methods that allow for both exploration and explanation of the problem have been selected.The multiple case study design is a robust method that is suitable for exploring complex phenomenasuch as the implementation of an organisational grievance resolution system in its real life context.9 Thisresearch approach also tolerates data collection from multiple types of sources thus viewing the problemfrom multiple perspectives, and allowing rich data to emerge. The sensitive nature of this research projectlimits access to cases, consequently a maximum variation in the type of organization studied was sought10 Three cases with diverse characteristics in their ownership type, sector, size and demographiccomposition were selected to allow for cross-case comparison. A research protocol established strategiesto protect the privacy of individuals and the organisations who participated in the study.

Semi-structured in-depth interviews were conducted with 26 personnel who had experience withgrievance resolution processes in each organisation. Each interview lasted over one hour and was heldin a private location. With the permission of the interviewees, each interview was taped and latertranscribed. Interviewees revealed their experiences and understanding of their organisations grievanceresolution processes. The following two tables set out the characteristics of each case study.

TABLE 1: Characteristics of the three organizations

Industry Ownership Size - operating revenue Geographical level

Case 1: Edu Education Public $1,432 million State based

Case 2: Asset Asset management Public $140 million State based

Case 3: Construct Engineering Public Private $75 million State, + national and

Partnership global partners

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9. Yin, R.K., Case Study Research: Design and Methods. 3 ed. 2003, Thousand Oaks, California: Sage Publications.10. Flyvbjerg, B., Five Misunderstandings about Case-Study Research, in Qualitative Research Practice, C. Seale, et al.,

Editors. 2004.


TABLE 2: Characteristics of the workforce of each organisationSize % % % Diversity – Turnover

Non-Ongoing Female Professional IndigenousEmployees

Case 1: 7,100 17% 52% 42% 0.006% 16%Edu

Case 2: 1,000 13% 38% 43% 5% 1%Asset

Case 3: 285 8% 18% 16% 1% 7%Construct

Data analysis techniques are drawn from the practice of narrative research, using both descriptive andexplanatory narrative analysis to build intelligible meanings within each case.11 The data wasdeconstructed and key themes that relate to the research problems and conceptual framework wereidentified. These themes were then interpreted within the conceptual framework of organisational justicetheory.

Is this a dispute, a conflict, bullying, harassment or micro-political behaviour?

Deciding whether the presenting problem is a dispute between two employees of a stronger personattacking or harassing a weaker person can be a complex decision for managers. Typically we rely onour gut reaction to the story we are told, hence the adage that the person who gets their story in first isat an advantage. Academic literature does not provide simple guidance with little agreement betweenmanagement literature and the social sciences on the definition of conflict.12

Conflict definitions from the conflict management literature often focus on the nature of the matter athand - the actual phenomena of conflict. Frequently the behaviour of the parties involved becomes thefocus of investigations of conflict management processes, styles and attitudes. However, definitions ofconflict will generally include: (1) a temporal element by referring to the ongoing contest between theparties; (2) an inter-relational element that infers two or more parties are involved; (3) an element ofintensity that ensures that the potentially contested matters are recognised; and (4) an element ofopposition or contest which implies that the parties involved have some capacity to interfere with eachother.13-14 Some scholars will also differentiate between a conflict, where the parties experience negativefeelings, and a dispute, which is a difference in understanding or interpretation of fact.15

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11. Polkinghorne, D.E., Narrative Knowing and the Human Sciences. Philosophy of the Social Sciences, ed. L. Langsdorf.1988, Albany N.Y.: State University of New York Press.

12. Keashly, L. and B.L. Nowell, Conflict, Conflict Resolution and Bullying., in Bullying and Emotional Abuse in theWorkplace: International Perspectives in Research and Practice, S. Einarsen, et al., Editors. 2003, Taylor & Francis:London.

13. Boulle, L., Mediation: Principles, Process, Practice. 1996, Sydney: Butterworths.14. Condliffe, P., Conflict Management: A Practical Guide (2nd Ed). 2003, Sydney: LexisNexis Butterworths.15. Moore, D., David Williamson's Jack Manning Trilogy a Study Guide. 2003, Sydney: Currency Press.


Definitions of bullying behaviour also usually include as necessary conditions the four elements ofconflict; (1) multiple interactions, (2) temporal elements, (3) two or more parties and (4) the capacity tointerfere with a party’s preferences, values and interests. Leading scholars put the following definitionof bullying forward:

(B)ullying at work means harassing, offending, socially excluding someone or negativelyaffecting someone’s work tasks. In order for the label bullying (or mobbing) to be appliedto a particular activity, interaction or process, it has to occur repeatedly and regularly(e.g. weekly) and over a period of time (e.g. about six months). Bullying is an escalatingprocess in the course of which the person confronted ends up in an inferior position andbecomes the target of systemic negative social acts. A conflict cannot be called bullyingif the incident is an isolated event or if two parties are of approximately equal strength.16

One criterion difference between standard definitions of conflict and bullying is the unidirectionalcapacity of one party’s ability to interfere with preferences, values and interests of the other party. Asecond criterion, the defenselessness of the target, is frequently cited as the most significant necessarycondition that identifies the perpetrator’s behaviours as bullying. Hence, there are two distinguishingcriteria that differentiate bullying from conflict; (1) the unidirectional capacity to harm and (2) the limitedor relative inability to defend. These similarities lead some authors to categorize bullying behaviours asa subcategory of workplace conflict.17

A bystander may also find it tricky to differentiate between conflict and bullying, particularly in a conflictsituation where the behaviours and the experiences are very similar to bullying.18 For example, duringan escalating conflict one party may lose power and thus be unable to defend themselves fromincreasingly personal and aggressive attacks. Additionally, the other party may become devalued as ahuman, enabling justification of the hostility and also the de-sensitization to the potential harm causedby the bullying. Another process that may occur is that in the early stages of bullying the target mayrespond, thereby giving the impression of a conflict between equals or giving rise to an assessment thatthe target’s behaviour warranted a return of hostile or negative acts. This is particularly likely to occurwhen the initial actions by the perpetrator go unnoticed or unchallenged. The actions of the perpetratorsmay then be re-interpreted as maintaining professional standards or firm but fair management practices.Then the decision criterion of the degree of equality of power each party has over the other becomesirrelevant since the target is assessed as deserving of the treatment.

In the workplace all the participants, be they the target, the perpetrator, the grievance resolution manageror the witnesses, may be similarly confounded by the problem of clear identification and labeling of thebehaviours. Preliminary decision-making, to decide if the behaviour does not meet the organisationsnorms, is highly problematic and contestable. However, bullying behaviours, whether labeled as such

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16. Einarsen, S., et al., Bullying and Emotional Abuse in the Workplace: International perspectives in research and practice.2003, London: Taylor & Francis.

17. Hodson, R., V.J. Roscigno, and S.H. Lopez, Chaos and the Abuse of Power: Workplace Bullying in the Organizationaland Interactional Context. Work and Occupations, 2006. 33(4): p. 382-416.


by the target or not,19 are a severe form of social stress.18 This is revealed in two recent studies that haveused two types of measurement in the same population and then compared the results.20 In both studiesthe participants reported a considerably higher rate of exposure to specific negative acts than the rate atwhich they self-label as a target of bullying. These results demonstrate what is known anecdotally;bullying behaviour harms the target, whether the target labels it as bullying or not. This creates asignificant imperative to be able to diagnose and manage bullying behaviours in organisations. Managersneed a sound understanding of conflict, bullying and the ADR processes that may usefully be employedto reduce the potential harm to the target and indirectly to the organisation.

Organisational justice processes

Organisational grievance resolution systems are determined by internal policies and procedures anddesigned to be implemented internally. The exceptions are where those acts and behaviours are definedas illegal; sexual harassment, racial vilification, discrimination based on racial, gender, sexuality, ageor marital status, violent acts, fraud and other illegal behaviour, all of which would normally be passedover to an external agency. In reality, this leaves the internal grievance resolution system primarilyhandling complaints about behaviour that is not otherwise legally defined. Frequently this will bebullying or harassment behaviours.

These systems primarily operate in a quasi judicial form based on an adversarial model.22 They rely onassessing claims, collecting information and evidence, substantiating claims, controlling risks, meetingprocedural timelines, interrogating witnesses, investigating facts, and outcomes that can includedisciplinary measures. The parties involved may continue to act in an oppositional manner throughoutthe period of the grievance resolution process. This model is broadly based on society’s expectations ofretributive justice, or punishment for the offender. However, there are a number of relevant distinctionsbetween justice being served in an organisational context and in the broader society. Firstly, there hasbeen little appetite for disciplining employees. This makes is difficult for the decision-maker to followthrough after an investigation, although the recent legislative changes in Victoria may influence this.Secondly, organisational grievance resolution systems typically do not separate powers, but rely oninternal grievance resolution officers, investigators and decision-makers. These employees may need torely on each other for reward distribution decisions or cooperation of some sort, at a later date. This isan inherent conflict of interest. Another significant conflict of interest is between the organisation’s

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18. Zapf, D. and C. Gross, Conflict Escalation and Coping with Workplace Bullying: A Replication and Extension. EuropeanJournal of Work and Organizational Psychology, 2001. 10(4): p. 497-522.

19. Magley, V., et al., Outcomes of Self-Labeling Sexual Harassment. Journal of Applied Psychology, 1999. 84(3): p. 390-402.

20. Ólafsson, R.F. and H.L. Jóhannsdóttir, Coping with Bullying in the Workplace: The Effect of Gender, Age, and Type ofBullying. British Journal of Guidance & Counselling, 2004. 32(3): p. 319-333.

21. Salin, D., Prevalence and Forms of Bullying Among Business Professionals: A Comparison of Two Different Strategiesfor Measuring Bullying. European Journal of Work and Organizational Psychology, 2001. 10(4): p. 425-441.

22. Giacobbe-Miller, J., A Test of Group Values and Control Models of Procedural Justice. Personnel Psychology, 1995.48(1): p. 115-143.


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interest in productivity and individual human rights, particularly where the alleged perpetrator of thebullying behaviour is the senior employee, and therefore arguably a more valuable resource for theorganisation.

Two recent studies have examined organisational grievance resolution processes from the perspectiveof the third party practitioners who apply intervention strategies, that is ADR processes.23-24 In her studyof ADR practitioners engaged by Australian organisations, Van Gramberg raised concerns about thequality of justice achieved. She found that power imbalances were not adequately dealt with and thatneutrality, that is the absence of bias, was not achieved by the ADR practitioners. Indeed, it was suggestedthat these external ADR practitioners could become instrument(s) of managerial power.24 Saam23

specifically reviews the interventions adopted by external agents to address bullying. This empiricalstudy led to the proposal that mediation was not an appropriate intervention strategy. Rather sheconsidered that a multi-level understanding of the phenomena of bullying would facilitate a morenuanced selection of intervention processes, such as coaching and organisational development.

Findings of this study

This study revealed significant gaps between the participants expectations and the performance of thegrievance resolution system. Additionally, these three organisations displayed limited expertise ingrievance resolution skills and only superficial knowledge of critical elements of justice processes. Twoorganisations carried out a number of actions that disempowered the grievant significantly. These actsranged from locating the grievance resolution policies and procedures in obscure and difficult places,refusal to accept or act on verbal grievances, not advising grievants of entitlements, and not publishingprocess criteria. Informants who reported the widest gaps between their expectations and the performanceof the grievance resolution process also reported the most extreme negative impacts on their health andwell-being, and on their career prospects.

Senior personnel in each organisation described the legislative imperative as a clear rationale to establisha grievance resolution system. Additionally, they referred to theories of organisational commitment andjob satisfaction, and to employee well-being as being important imperatives. However, they often didnot have a clear understanding of what they wanted the grievance resolution system to achieve. Forexample, achieving fairness was cited as a process objective without then incorporating the specificelements of procedural justice into the grievance resolution system. Fairness was also cited as an outcomeobjective, but without clear definitions and boundaries this concept becomes a slippery and often elusivenotion. Common parlance shows that the term can be highly contested. It implicitly involves resolvingcompeting interests; balancing the rights and interests of individuals and the organisation’s goals. Forexample, fairness can be defined as justice for the grievant or alternatively as minimising disruption forthe organisation.

23. Saam, N., Interventions in workplace bullying: A multilevel approach. European Journal of Work and OrganizationalPsychology, 2009(January): p. 1-25.

24. Van Gramberg, B., The Rhetoric and Reality of Workplace Alternative Dispute Resolution. Journal of Industrial Relations,2006. 48(2): p. 175-191.


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All interviewees were aware of poor outcomes and distressing experiences during the resolution processfor many grievants. One senior interviewee had serious concerns about the ability of the grievanceresolution system to deliver a just outcome and to use a fair process. She said:

I suspect… people think twice about going to a formal grievance because of the risk ofmaybe their careers not being successful after that….(P)eople self-select themselves outfrom that rather… than be labeled a troublemaker. GP1 (30:35)

A number of factors were revealed as contributing to the organisations’ difficulties in selecting andimplementing an appropriate ADR process. These included the problems associated with determiningwhether it is bullying or interpersonal conflict. The lack of clarity about the objectives of a grievancesresolution system was reflected in an inability to select a resolution process. For example, different ADRprocesses are associated with the objectives of being a deterrent for bullying, a remedy for bullying orilluminating systemic problems.

Confusion about procedural justice was revealed in a lack of knowledge of the difference betweeninternal and external validity. Some informants said that if a process was implemented according to thepolicy and procedures it was therefore valid. Some went further suggesting that this implied justice wasachieved because there was consistency of application of the policies and procedures. Clearly internalvalidity does not mean external validity, as a process that does not meet basic procedural justice criteriadoes not achieve societal norms of justice. Confusion between distributive justice and procedural justiceis also rife. As noted by MacCoun,25 satisfying perceptions of procedural justice does not implydistributive justice has been achieved.

This grievance handler had serious misgivings about the grievance resolution process. In his responseto a question about justice he said:

Justice would have been probably a way of finding the truth of the matter, rather thanworking within a particular framework that to a certain extent obscured some of thetruth of the matter. GH 1 (48:25)

This interviewee expressed considerable inner turmoil, on one hand he believed he has operated ethicallyand appropriately because he had adhered to the requirements of the grievance resolution process as itwas laid out in writing. On the other hand he steadfastly believed that the grievant did not get justice,that the truth of the matter was not revealed and that therefore the grievance resolution process acted tore-affirm an incorrect action.

Each organisation was uncertain about how to respond to the alleged perpetrator, even when theinvestigation found them to be guilty. Perpetrators were seldom disciplined; for instance one perpetratorwas the centre of five grievances before the organisation took action against him or to protect staffmembers in his orbit. Other perpetrators did not have any adverse outcomes; rather they advanced rapidlyin their careers immediately after the grievance. However, the organisation that had predetermined

25. MacCoun, R.J., Voice, Control and Belonging: The Double -Edged Sword of Procedural Fairness. Annual Review of Lawand Social Science, 2005. 1: p. 171.


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disciplinary actions, by linking the discipline and grievance resolution policies, was more successfuloverall in reducing the negative consequences of the bullying behaviour. The strategies included trainingin communication and interpersonal skills, and relocation.

None of the organisations had mechanisms to ensure that the grievance resolution policies and procedureswere complied with or audit processes to review the efficacy of the system. Additionally, there was alack of appeal mechanisms. In light of the potentially serious ramifications of bullying e.g. suicide andPost Traumatic Stress Disorder (PTSD), and the anecdotal evidence that employees are reluctant topursue a grievance, this is particularly significant.

Stories about the experiences of grievants become part of the organisation’s reputation. Despite requestsfor confidentiality, some information does spread, especially when the grievance contains claims ofbullying. Although each of the organisations partially recognized this, there were no strategies to managethese stories. Nor was this knowledge about leaking effectively incorporated into the design of thesystem. One informant described how she felt she was being shunned because other staff knew that shehad made a grievance. In her mind this occurred because of a breach in confidentiality. She said:

It must have been spread around. I didn’t, but it has been spread around. Don’t knowwho and how. So they are very close to the managers, so I’ve been seen as a separateperson from that group. So a lot of things that – your discussion and the works goingon, I’m not included. So I feel very strange, but I have been putting up with it. G2 (40:35)

There was almost universal expectation that managers would have expertise in resolving grievances.The expectation was that the presenting problems would be clarified by the manager to determinewhether it was an interpersonal conflict, harassment or bullying behaviour. Managers were expected tohandle the emotional content of the grievance. They were expected to be able to determine a strategy forresolving the presenting and underlying issues using interventions acceptable to the organisation andthe individuals.

De-escalation of the conflictual and harassing behaviour was mentioned as an aspect of resolution. Oneinterviewee said that he wanted skills to help him manage the day to day aspects of the conflictualbehaviour. He described his frustration with the training:

And with, like the things I got was like going through the Acts and the Regs and blah,blah, blah. And a couple of examples of, you know, with names deleted here, at howreports were written up as opposed to, like it was a purely investigative thing rather thangiving you well, how do you manage this person or this sort of what you could do to getthem to open up, get them back on track. Not that you have to be a social worker, butjust to get them – open them up, moving on. GH1 (50:20)

Rather than just investigating what happened, he wanted his intervention to have a positive impact onthe relationships in the workplace.

26. Greenberg, J. and B.J. Alge, Aggressive reactions to workplace injustice, in Dysfunctional Behavior in Organizations,R.W. Griffin, A.M. O'Leary, and J. Collins, Editors. 1998, JAI Press: Greenwich. p. 83-117.


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The cost of justice was alluded to by several informants. Just as there is cost associated with unfairness,26

there is also a cost associated with achieving justice, whether this is through the allocation of resourcesor via the expenditure of time by grievance resolution experts. Organisations may consider the cost ofjustice to be extravagant, however fair processes are effective in creating trust and building loyalty,especially if the organisation faces uncertainty.27

Organisations used a number of tactics that appeared to restrict access to, or block the progress of agrievance. Informants quoted being given mis-information, no information, and sometimes chaoticinformation about the grievance resolution process and their rights during the process. This left themconfused and frustrated. An interpretation by several grievance handlers was that policies were designedto restrict the engagement of reasonable processes. This was described as a deliberate tactic to obscurethe complete story from being revealed, full disclosure of which may have changed the outcomes forthe grievant. Tactics of avoidance and denial have short term benefits for the organisation; however theyplace the organisation in some jeopardy as employees become more informed and have a greater senseof their entitlement to be treated with respect and dignity in the workplace.

According to one interviewee, the decision to intervene in a matter was not always triggered by acomplaint. He complained that requests from front line managers for protection from upward bullyinghad been denied, or delayed, on the basis of an assessment the degree of risk to the organisation. Hesaid:

I reckon they just put [the policy documents] out to cover their arse. To make sure thatthey have got the process in place so that they look good from the outside. And then theyassess the damage of what it’s going to cause internally, whether they act on it or not. Ihave seen a document which says that every grievance that goes up has a riskmanagement assessment on it in terms of how much damage it’s going to do to Asset -Org. GH1 (33:28)

Sufficient information is now available to alert organisations to the potential prevalence of bullying andharassment in their industry. There is sound evidence of the types of reactions that may be the result ofunchecked bullying behaviour, such severe depression, PTSD, absenteeism and suicide. Additionally,organisations in Australia have a clear duty of care established via OH&S regulation. Organisations needto know that their systems are working to protect their employees and to ensure a safe workingenvironment is maintained.

This research adds to the emerging field of interest in grievance resolution system as a core element ofemployment relations. It makes a contribution to the emerging field of study into the role of alternativegrievance resolution process in organisations. This includes a range of practices such as mediation andrestorative justice. The field of mediation is vast, with practices including evaluative, narrative,transformative and facilitative, where each of these practices is based on different underpinning

27. Lind, E.A. and K. van den Bos, When Fairness Works: Towards a General Theory of Uncertainty. Research inOrganizational Behavior, 2002. 24: p. 181-223.


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assumptions about justice and how it is achieved. The proper handling of employee grievances is centralto good governance, but requires further rigorous research to reveal the efficacy of ADR methods inresolving bullying and harassment.

Competitiveness in industry can be achieved through systems of management and flexiblehighly trained employees, (however) … for flexibility to operate employees requireguarantees of fairness. …(T)he state owes it citizens a duty to secure the traditional civilliberties in the workplace.28

28. McCallum, R., Justice at Work: Industrial Citizenship and the Corporatization of Australian Labour Law. Journal ofIndustrial Relations, 2006. 48(2): p. 131-153.


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Public Policy and Arbitration

in AustraliaAA de Fina OAM1

Introduction

It is trite to observe that ordered societies reflect the values perceived as applicable to and governingthat society by what is described as public policy.

Such “policy” is a reflection of politics, tradition, culture and, in some instances, religion (which isrelated to culture and tradition).

In Australia, as a country with Judeo-Christian values, a common law system and a Westminster typepolitical system, public policy can be identified in municipal law, interpretation and application throughcurial decisions, subscription to international or bi-lateral conventions or obligations, political debate,and economic and foreign policy.

Public policy is thus continually evolving and can only be subjectively determined at a particular pointof time. This gives rise to potential uncertainty, unpredictability and possible expansion or contractionof what might otherwise be considered a fixed public policy.

The issue of Australia public policy on matters arbitration has been brought into sharp focus with therecent amendments to Federal legislation on international arbitration,2 and the new Domestic ArbitrationActs adopted variously by all States and Territories3 in Australia, save Western Australia, in some aspectsreflects the public policy in Australia which is inconsistent with both the fundamental concept ofarbitration and conflicts with the UNCITRAL Model Law for International Commercial Arbitration4

upon which it purports to be based.

Public policy is particularly relevant to effectively all aspects of arbitration in Australia – both domesticand international. It colours or dictates those matters which may or may not be dealt with by arbitration,the conduct of an arbitration and the recognition and enforcement of awards.

1 Past President IAMA Past President ACICA Hon Fellow The Institute of Arbitrators & Mediators Australia Member Cour Européenne d'Arbitrage (France) Member International Arbitration Institute (France2 International Arbitration Amendment Act 20103 Commercial Arbitration Act 2011 (Vic); Commercial Arbitration Act 2011 (NSW); Commercial Arbitration Act 2011 (NT); Commercial Arbitration Act 2011 (SA); Commercial Arbitration Act 2011 (Tas); Commercial Arbitration Act 2011 (ACT).4 As adopted by the United Nations Commission on International Trade Law on June 21 1985


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Application

By s19 of the International Arbitration Act, although directed to both interim measure or award and afinal award, there is, in effect, an objective statement of what constitutes public policy in Australia inthe following terms:

“(a) the making of the award was induced or affected by fraud or corruption; or

“(b) a breach of the rules of natural justice occurred in connection with the makingof the award.”

However this does not go to a complete or limiting statement of Public policy relating to arbitration.

The term ‘public policy’, in its simplest form, is used by those responsible for the legal system in sucha state to avoid certain consequences that might flow even from the correct application of law; especiallyif its conflict of laws rules lead to the application of rules by foreign communities which may affectlocal rules or local community standards ‘so sacrosanct as to require their maintenance at all costs andwithout exception’,5 or, since the notion of public policy in private international law is not identical tothat in the field of arbitration, if a court considers that enforcement of an arbitral award ‘would violatethe forum state’s most basic notions of morality’.6

Consequently, public policy is obviously dependent upon the judgement of the respective legalcommunity at a particular time. What is considered to be part of public policy in one nation state maynot be seen as a fundamental standard in another nation state with differing economic, political, religiousor social and legal systems.

In the second reading speech introducing the NSW Commercial Arbitration Bill into the New SouthWales Parliament, the then NSW Attorney General stated the rationale for a new Domestic Act was tofacilitate and attract international commercial arbitrations to New South Wales. This reason is apparentlythe basis for a move for Australia-wide adoption in relation to other States and Territories and thus anexpression of public policy as established by the Standing Committee of Attorneys General.

On a proper reading of the previous “uniform” Commercial Arbitration Acts in Australia, save for theinclusion of a confidentiality provision in the new or prospectively new Acts and some other aspects,there is little, if any, change between the old7 and new Acts. Supporters of the new Domestic Acts suggestthat arbitrators are more empowered than under the old Acts. Careful analysis does not support this view.

Australian public policy in respect to arbitration is reflected in some of the statutory terms adopted inboth the International Arbitration Act and the Domestic Acts purporting to adopt specific provisions ofthe Model Law, but which do not in effect do so.

This unfortunate characteristic leaves open to courts of differing jurisdictions in Australia the

5 Cheshire & North, Private International Law, 9th Edition 1496 United States Supreme Court 508 F2 at 9747 “Uniform” Commercial Arbitration Acts in all States and Territories of Australia


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pronouncement of differing and sometimes contradictory interpretations such that there cannot be saidto be a single public policy statement arising from court decisions.

The suggestion that the new Acts will bring international arbitrations to Australia appears based upon abelief that the governing law of the situs is the most important factor in selecting a situs.

This is nonsense. Under other than common law legal systems, the law of the situs does not necessarilyapply.8 Further, there are many factors which affect the parties’ decision on situs selection. These includegeographical location, security, language, facility, substantive law, cost, availability of support facilities,and convenience.

Public Policy on Arbitrability Generally

Introduction

Judicial power is an essential prerogative of a nation state. Similarly, the state retains the power to prohibitsettlement of certain categories of disputes outside its courts. It is in these circumstances, notwithstandingthe express wish of parties to a dispute by their agreement to arbitrate inter alia giving jurisdiction toarbitrators to settle their dispute, that the prohibition on non-curial resolution establishes that the disputeis not arbitrable. Thus, arbitrability is a condition of validity of the arbitration agreement and inconsequence the jurisdiction of an arbitral tribunal. Arbitrability expresses public policy limitations uponarbitration as a method of settling disputes.

Insofar as it is relevant to arbitrability, public policy in Australia appears to have been generally basedupon an apprehension that the private determination of a public law claim in circumstances where thedetermining tribunal and the decision are not generally the subject of wide ranging review or publicationwill undermine both the legal and social fabric of society.

Thus, such matters as criminal proceedings or alleged breaches of regulatory or administrative publiclaw which may provide for sanctions, such as fines payable to the public purse or periods of detentionin penal institutions, are not appropriate to be dealt with other than by a court and in accordance withmunicipal law.

As a general view, with some minor exceptions,9 national public policy appears more liberal regardingarbitration in international contracts than on contracts in internal national relations since nationalstandards restricting arbitrability have either, from express reference10 or from interpretation of thecourts,12 set specific conditions where national standards will not be applied to international contracts.

8 See AA de Fina ‘Hard and Soft Law in Arbitration’ The Arbitrator and Mediator Vol 30 No 1 April 20119 Ratification of the New York Convention by Kuwait and changes of the national law in Saudi Arabia.10 Eg Article 1502(5) of the New French Arbitration Law of 198111 Eg Tresor Public c Galakis JCP 1966 14 798 (France) 945.Ct 2449 Fritz Scherk v Alberto Culver Co 417 US 506 (1974) (USA) Mitsubishi Motors Corporation Ltd v Solar Chrysler-Plymouth Inc 473 US 614 (1985) (USA)


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12 For example, states governed or influenced in their domestic laws by Sharia’n law13 Alarcia Castells v Hergstenberge e Procuratore General Court of Appeal of Milan RDIPP XXIX (1983) 36414 Patents Act 1990 (Clth)15 Metrocall Inc v Electronic Tracking System Pty Ltd (2000) 52 NSW LR1 at 21ff16 Bankruptcy Act 1966

There is a growing recognition of what is, by appearance, an ‘international’ public policy. However itmust be recognised that the general liberalisation in respect of international contracts is, nevertheless,strictly constrained under public policy considerations in some nation states as being vital for themaintenance of their legal systems by preventing conflicting incursion of concepts formed or appliedexternal to the state from affecting the laws of the state by the very act of providing access to thoselaws.12

Within the context of the New York Convention and of the Model Law it is generally accepted thatarbitrability forms part of the general concept of public policy and that Article V(2)(a) of the New YorkConvention, which refers to objective arbitrability separately from public policy as referred to in ArticleV(2)(b), can be deemed superfluous.

In some countries, in particular Western European countries, strong support for and development ofthese principals going to an international public policy are evidenced. For example, the Court ofCassation in Rome stated in 198313

“The respective international public policy is based first and foremost on the need tosafeguard a legal and moral minimum which is common to the feeling of several nations.”

State Powers

A state holds unto itself certain powers, ordinarily expressed in legislation, to effect control over certainaspects of commercial or social activity.

As examples:

Patents Powers and functions to determine eligibility, grant title and determinedisputes between competing applicants are the province of theCommissioner of Patents or the Federal Court of Australia on appealfrom the Commissioner. These are statutory powers14 which cannot bereferred to arbitration. A patent amounts to a monopoly right solely inthe province of a state to grant.

Criminal breaches and As an arbitrator is appointed by agreement of the parties and not the prosecutions state15 and as penalties may include state involvement, such

considerations must remain within the state to specify and public courtsto apply.

Bankruptcy Is a matter of public interest and subject to law. Only courts have theauthority to rule on bankruptcy matters.16


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Divorce Marriage is a process defined and sanctioned by the State. Dissolutionof marriage can only occur in accordance with processes and provisionsdictated by the state.17

Winding up of Corporations Corporations are registered by State law and winding up has public andcommercial interest. It is only the courts which have jurisdiction todetermine winding up procedures.

Insolvency Insolvency of a Corporation or individual is a matter of public interestsubject to public scrutiny through and by Courts.

Certain aspects of Consumer Whilst alleged breaches of Consumer and Competition law (previouslyand Competition Law the Trade Practices Act) are arbitrable18 fines and custodian penalties

are not.

However, there are wider aspects of matters which are essentially non-arbitral arising from internationalor bi-lateral conventions.

These aspects include refugee status and entitlement, piracy, apartheid, corruption, slavery, bribery andmatters of transnational Public policy.

Party Autonomy and Lex Constructus

The substantive rights and obligations of the parties are governed principally by the substantive lawagreed by the parties as being applicable to their contract. However this principle is not immutable. In aparticular contract or in the context of issues that might arise in the performance of the contract manifestviolation of public policy of the nation state whose law is cited as the governing law, or public policyviolation under some other “connected” body or rules of law (ie where the contract is to be performedif not the nationality of either of the parties19 may occur.

Transnational Public policy in Arbitration

Many of the agreements now being entered into between parties of different nationalities for theperformance of major contractual obligations (for example infrastructure projects, financing, cross bordertrade or the like) incorporate an arbitration clause for the settlement of disputes which might arise havecertain common characteristics.

The parties may provide in their agreement that:

• the substantive law of the contract will be other than the national law of either of the parties

• the substantive law is not that of the place where the contractual obligations are to be performed(ordinarily in the national state of domicile of one of the parties)

17 Marriage Amendment Act 200418 see IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 100 ALR 361 and Government Insurance Office of

NSW v Atkinson Leighton Joint Venture (1981) 146 CLR 20619 Such as has arisen in Westacre Investments In v Jugoimport [1998] 4 All E.R. 570


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• the situs of any arbitration will not be within the nation state of domicile or either of the parties

• the likely place of enforcement of any arbitral award may but not necessarily will be the nation stateof one of the parties.

Thus, questions of transnational or international public policy may become an issue to be considered byarbitrators in determining duties and obligations in commercial relationships.

The situation is compounded by difficulties in establishing what might be legal or illegal in cross bordertransactions.

Some guidance to arbitrators is available from the statutory adoption by Australia of common conceptsof international law.

A number of states have acceded to multilateral conventions condemning illegal contracts, corruption,bribery of public officials and the like.20

Violation of Universal public policy v Local public policy

Bribery and corruption are generally condemned throughout the world. In some nation states briberyand corruption are the norm and not expressly prohibited under domestic law.

The existence of transnational conventions, resolutions or agreements condemning a particular practicedoes not necessarily translate into a broad consensus which might be a basis for ascertaining the existenceor violation of a principle of “international public policy’.

Thus, the prospects of certainty of breach or conformity of particular contractual arrangement in thecontext of international public policy is less than that which might be ascertained in respect of localpublic policy if such can be accurately ascertained and which can be interpreted as strictly applying tothe contractual arrangements agreed between the parties.

However, in contractual negotiations where significant cultural and legal environments exist as betweenthe parties, questions of public policy are important or can assume importance and should be addressedduring negotiations.

Legal Rules governing Arbitrability

Legal rules restricting arbitrability need not necessarily be part of public policy.

Such restrictions, whether they are incorporated in private or public law of a state, may only have to beapplied by an arbitral tribunal or a court if they form part of the law applicable to the dispute but neednot be so fundamental that they are part of public policy of a state with the effect of having to be appliedeven if another law is applicable to the dispute.

It may well be that such restrictions, whether they are incorporated in private or public law of a nationstate, only have to be applied by arbitrators or courts if they form part of the law applicable to the dispute

20 OECD Convention on Combating Bribery in Foreign Public Officials in International Business Transactions (1997)


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but need not be considered as so fundamental that they are part of public policy of the state with theeffect of having to be applied even if another law is applicable to the dispute.

There is further consideration which derives from the values and standards of communities not beingstable in that they change and develop. So, therefore, does public policy change since it is derived fromthose values and standards.

In relation to international arbitration, national public policies have changed over the years influencedby a number of factors such as national developments in the political and legal system, involvement ofthe national economy in international trade, political decisions such as the promotion of foreigninvestment or international development (such as the coming into force of the New York Convention),the growing acceptance of arbitration by other states, the growing infrastructure and legal security ofinternational arbitration which has made it more difficult for states to adopt or keep a negative approachto arbitration if they want to participate in international trade and investment to the benefit of theircountries.

Additionally, as previously stated, there is a growing recognition of what is by appearance an‘international or transnational’ public policy deriving from

1. The needs of international trade developing specific rules of private international law from traditionalpublic policy;

2. The application of such rules not necessarily establishing a specific or mandatory lex fori for aninternational arbitration;

3. The public policy of the forum may, of itself, intervene to protect either foreign Public policy or theinternational community.

International arbitrations may be subject to three separate national systems of law – the law of procedure,the substantive law to be applied and the law of enforcement.

In determining whether or not a particular dispute is arbitrable it is possible, in such circumstances, thatall three systems of law must be considered and that such application may give rise to differing andinconsistent results.

Given that there is international recognition of concepts of non-arbitrability and that such concepts maybe reflected in the laws of a state it is necessary to consider what types of disputes are likely to beconsidered as not capable of settlement by arbitration under national laws.

Universally, such matters as criminal law, tax law, exchange control regulations and administrative rulesare not arbitrable. Similarly, issues relating to matrimonial status and bankruptcy are non-arbitrableunder the laws of all nation states.

Arbitrability of Intellectual Property Disputes

In recent years there has been a vastly increased importance accorded to intellectual property as a resultof the recognition of the market lead that technological innovation confers. The value of the goodwill


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and reputation that is acquired through the promotion, marketing and sale of products in associationwith trademarks, the advantages that industrial designs confer in differentiating and making moreattractive products embodying those designs, the market success that new books, films, songs and otheritems protected by copyright generate, and of innovative patent, is, on any view, immense and ofsignificant importance in world economies.

The enormity of the task of assessing applications in relation to one aspect of intellectual property inone discrete global area is given by the European Patent Office which employs over 11,000 researchersand 950 examiners in order to cover all the technical fields represented in the subject matter of patentapplications.

The increased demand for intellectual property titles and the increasingly international character of theexploitation of intellectual property raises the prospect of an increasing number of conflicts of aninternational character.

International Conventions

The formal modern globalisation of intellectual property concepts effectively occurred in 1970.

Under the auspices of the United Nations, there was created the World Intellectual Property Organisation(WIPO). By Article 2(viii) of the Convention establishing WIPO, intellectual property is defined asincluding the rights relating to

(a) literary, artistic and scientific works;

(b) performances of performing artists, phonograms and broadcasts;

(c) inventions in all fields of human endeavour;

(d) scientific discoveries;

(e) industrial designs;

(f) trademarks, service marks and commercial names or designations;

(g) protection against unfair competition and all other rights resulting from intellectual activity in theindustrial, scientific, literary or artistic fields.

Australia is a signatory, both to the WIPO Convention and to the precedent Paris Convention for theProtection of Industrial Property (1883) revised most recently at Stockholm in 1967.

Australian Context

It is generally recognised that the laws in Australia in respect of intellectual property do not provideprotection to all the subject matter referred to in the definitions stated in the WIPO Convention.

Protection in Australia may, at best, be described as ad hoc.

There are, within Australia, both statutory and non-statutory legal regimes establishing protectable rightsin intellectual property that encompass a broad scope of subject matter.

The Designs Act 1906 (Clth) protects designs embodying features of shape, configuration, pattern orornamentation which are applicable to manufactured articles.


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The Patents Act 1990 (Clth) grants exclusive rights in new inventions or ‘new manners of manufacture’which may be applied to useful ends. The scope of this Act can encompass such recent developments asbiotechnology.

The Trade Marks Act 1955 (Clth) gives traders exclusive rights in the marks or symbols which theyadopt to market their goods and services so long as these marks are ‘distinctive’ and do not otherwisecause deception or confusion.

Additionally, there are statutory regimes which extend protection of a more individualised character tospecific sui generis kinds of subject matter. The most important of these are the Plants Variety RightsAct 1987 (Clth) and the Circuit Layouts Act 1989 (Clth).

The Copyright Act 1968 (Clth) embraces literary, dramatic, musical and artistic works, sound recordings,cinematograph films, sound and television broadcasts and published editions of works.

Within these categories are broad ranges of subject matter. For example, the term ‘literary works’ includescomputer programs and electronic data bases, ‘artistic works’ extends to technical and design drawingsand ‘sound recordings’ and cinematograph films’ include recent innovations such as the compact diskand videogram. In recent years performers have been given limited rights with respect to theirperformances although this is not by way of the grant of a full copyright.

All of these statutory provisions establish rights in proprietorship for varying periods from creation or‘publication’ under the Copyright Act and registration under the other Acts.

The non-statutory regimes are essentially the equitable action for breach of confidence which enablesprotection to be given to a wide variety of information so long as it has been kept secret, or has onlybeen communicated in confidence. Trade secrets and commercially sensitive information are the mostcommon instances where the action is invoked but it extends to other kinds of information such as privateconfidences, government secrets and any information is not in the public domain.

The common law action of passing off enables traders to protect the goodwill and reputation which theyhave built up in a particular business or activity through the use of a distinctive mark or other indicationof origin. This form of protection overlaps with that which is available under the registered trademarkssystem but it extends beyond this and, in some instances, may give protection in situations where trademark protection would not be available. It is further supplemented by other common law actions whichmay protect the goodwill of traders such as the action of injurious falsehood.

The most significant recent development in this area has been under the provisions of the Competitionand Consumer Act (previously Trade Practices Act 1974 (Clth)) which prohibits misleading and deceptiveconduct or conduct likely to mislead and deceive in commercial transactions. Like provisions are includedin State and Territorial Unfair Trading legislation.21

21 Fair Trading Act 1985 (Vic) Fair Trading Act 1987 (NSW) Fair Trading Act 1987 (SA) Fair Trading Act 1987 (WA) Fair Trading Act 1989 (Qld) Fair Trading Act 1990 (Tas)


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The statutes that provide rights in intellectual property generally provide those rights as exclusiveenabling variously sale, licensing, allocation or other transfer or entitlement with or without restrictiveconditions.

It is in respect of agreements to transfer entitlement, use, or application of such intellectual propertyrights, whether as between parties within Australia or transational, that arbitration may be provided asthe forum for the resolution of future disputes or, absent a dispute resolution provision in suchagreements, as the process agreed by the parties for resolution of a dispute which has arisen.

The very nature of some intellectual property and its commercial application requires, in the protectionof the interest of the parties to an agreement, to transfer entitlement, use or application, the characteristicof confidentiality.

The traditional and classical concepts of arbitration as a private and confidential process have beenadvanced by the supporters of arbitration as providing a preferable forum for the resolution of, amongother subject matters, issues relating to intellectual property.

The argument being that arbitration avoids the public forum characteristic of curial resolution thusprotecting the interests of the parties.

Arbitration as a dispute resolution mechanism in intellectual property disputes

A feature of intellectual property disputes mitigating to arbitration is the highly specialised and technicalnature of the subject matter of intellectual property. Intellectual property encompasses matters whichare of a highly specialised or technical nature, for example by definition, patent technology is state ofthe art technology and covers an immensely broad area – the whole of current technology.

These particular characteristics of intellectual property and of disputes concerning intellectual propertymitigate to arbitration as a more appropriate means of resolving intellectual property disputes thanconventional litigation before the courts even in domestic disputes.

National state courts may find increasing difficulty in accommodating the need for specialist expertisein dealing with the subject matter of disputes relating to patented technology. In contrast, the parties tosuch a dispute can, with arbitration, ensure the specialist expertise is represented on the arbitral tribunal.

An important characteristic of arbitration is the facility for quick settlement of a dispute. Product andtechnology life cycles are shortening. Major investment decisions such as the decision to construct plantsor to undertake an international marketing campaign may depend upon the establishment of the right touse an invention or trade mark. A long, drawn out dispute will increasingly fail to respond to the businessneeds of those who exploit intellectual property and the possibility of proceeding directly with arbitrationrather than waiting in court lists for an available hearing time can be particularly attractive, at least toclaimants.

Additionally, it is necessary to consider the pace of technological process. This is becoming increasinglyrapid. Consequently, technology is often in advance of the law. The issue in dispute may involve aquestion of principle of such a nature that there is no readily available legal solution. The novelty of theissue may surpass analogical reasoning and require legislative solution. While waiting for legislative


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action, however, the parties to the dispute may require a business solution and may not wish to have abinding legal precedent created. This is available under arbitration.

It should be understood that the term ‘intellectual property’ itself, notwithstanding the definitionseffectively applied by statute in Australia, is a term of convenience. There is no universally accepteddefinition of the term which holds true for all or even most jurisdictions. As earlier pointed out, thebroad definitions provided by Article 2(vii) of the Convention establishing WIPO in reality does notprovide a definition in that it does not establish conceptual criteria which can be applied to identifycertain rights as intellectual property rights. As intellectual ingenuity develops and finds new expressionso too new means of protection and new rights are created. For example, the sui generis rights which areaccommodated in Australian law are so accommodated by express and particular legislation. There isgreat diversity in the laws of nation states as to the legal nature of intellectual property rights. Some,such as patents, trademarks, industrial designs and copyright, are property rights in the classical senseof conferring a legal power to exclude all others from the commercial use of the subject matter of therights. However, others are more limited exclusionary rights. This is the case of trade secrets where thepossessor of a trade secret has no rights against an independent discovery of the trade secret. It is alsothe case for other rights of protection against unfair competition which are exercisable only against alimited class of wrongdoers and are not able to be sold or traded in the usual way that property rightsmay be. A right to protection against misleading advertising, for example, may not be sold or licensed.

Arbitrability of intellectual property disputes

The question of ‘arbitrability’ goes to the very foundation of commercial arbitration, whether domesticor international, and extends to the nature and subject matter of a dispute which may be dealt with byarbitration, and the recognition and enforcement of a resultant award.

There is great diversity in the nature and function of intellectual property rights to the extent that theymay not be able to be treated as a discrete class that raise uniform objections on public policy againstthe submission of disputes concerning them to arbitration.

Specific issues raising questions of arbitrability in intellectual property disputes arise in relation to threeprincipal issues:

(a) the validity of intellectual property title in relation to which a dispute exists;

(b) the infringement of an intellectual property title;

and

(c) the ownership of such title.

Within Australia, a claim that an intellectual property title is invalid is classically one which falls withinthe exclusive competence of the State courts. This approach is not, however, universal. In the UnitedStates of America, by virtue of explicit statutory recognition, the question of validity of a patent may bearbitrated22 and it is generally considered that the validity of other intellectual property titles may

22 35 U.S.C.s 294


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similarly be submitted to arbitration.23 Contrastingly, in France24 and in Italy25 the question of validity isreserved to the exclusive competence of the state courts although in Italy it would appear that a questionof validity may be arbitrated where it is merely ancillary to a central contractual issue of a differentnature.26

The laws of all countries recognise that all intellectual property rights, with the exception of certainrights to protection against unfair competition, may be freely disposed of by the owner. In empoweringthe owner of a property right to enter into agreements with conditions the owner of a patent may, forexample, licence the right to exploit the patented invention to another party. The legal nature of thetransaction is that the owner covenants not to enforce the exclusive rights conferred by the patent againstthe licensee which, without the licence, would be liable for infringing those rights if it exploited theinvention commercially. In such circumstances, is the next step as is provided by the law in Switzerland,that the owner of the patent may similarly enter into an agreement with another party whereby the partiesconfer on an arbitral tribunal the power to decide that as between those parties the owner may not enforcethe exclusive rights conferred by the patent?

Certainly this was the approach adopted by the arbitral tribunal in the ICC interim award in Case No6097 of 1989.27 That arbitration concerned an alleged patent infringement between a Japanese companyand a German company in which the invalidity of the patent was claimed. It was agreed that Germanlaw should be applied to the alleged infringement of the patent. Under German law, decisions concerningthe formal validity of the patent fall within the exclusive competence of the Federal Patent Court.Nevertheless, the arbitral tribunal took the view that it had jurisdiction to decide the question of validitybetween the parties in the following terms:

“The arbitral tribunal is convinced that the parties have freely given it completejurisdiction to rule on defendant’s objections to the legal validity of the claimant’spatents. In order to eliminate any remaining doubt it should be specified that this powerto decide does not effect the formal validity of the patent registered in West Germany bymeans of a sovereign governmental act and that it will carry no consequences viz a vizthird parties.”

Under German law, only decisions concerning the formal validity of the patent is subject to thejurisdiction of a specific national court. Consequently, the right to contractually transfer legal rightsunder a patent can be used by the parties to an arbitration in that they may decide to consign thiscontractual power to the arbitral tribunal.

In principal, therefore, there is no legal obstacle that bars an arbitral tribunal thus empowered by theparties to rule as a preliminary matter on the material validity of a patent.

23 David Plant Arbitrability of Intellectual Property Issues in the United States ASA Special Series No 6 March 9424 C Albert Shavanne Melanges dedies àJean Vincent (Paris Dalloz 1981)25 Scherk Enterprises AG v Soc de Grades Marques Cass Sept 15 1977 No 398926 Giordani v Battiati Cass Oct 3rd 1956 No 332927 (9913) 4 ICC International Court of Arbitration Bulletin 76


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However, this does raise some questions of public policy.

For example, that where title in intellectual property is granted pursuant to a statutory applicationprocedure there is a public record of the title which serves to inform the public of the existence ofexclusive rights n respect of the subject matter of that title. A decision on the conformity of that subjectmatter to the statutory criteria for grant of title should not be made privately but should be, as in thecase of a court judgement, a matter of public record. It might be argued that this does not necessarilyreflect a consistently applied policy on the part of the state. For example, states may tolerate licencecontracts to be made in respect of a patent often without any requirement of registration of the fact thatsuch contracts involve an agreement not to enforce exclusive rights conferred by the patent between theparties to the licence contract. Further, parties are free to make pre-trial settlements. Thus, for example,if the invalidity of the patent, trade mark or industrial design, all titles registered on public records, isalleged in an infringement action the parties to that action are free to settle the litigation betweenthemselves. The terms of settlement may involve a licence given by the title owner to the other party –a private recognition of the non-enforceability of the title between the parties. There is no requirementthat such pre-trial settlements be registered as a matter of public record. A further public policy cited asoperating against the arbitrability of validity questions is freedom of trade and commerce. An intellectualproperty title is said to confer a monopoly that impinges on the public domain. Any decision whichlimits in any way the extent of that monopoly must, it is sometimes argued, be taken by the state courtsand not confided in a private tribunal.

An argument against this is that intellectual property rights are monopolies in a very restricted sense.They are not monopolies over anything that already exists in the public domain. Rather, they consist ofexclusive rights granted in return for the disclosure of something which, by definition, must not havebeen in the public domain.

Claims for infringement of intellectual property title raises different issues from those involved in aclaim for invalidity of title even though in infringement claims the invalidity of title is often asserted indefence. The legal question involved in infringement is whether one or more acts performed by arespondent, for example the manufacture of an invention or a design, the reproduction of copyright workor the use of distinctive sign, falls within the class of acts that the owner of the intellectual property rightis given exclusive rights to perform. It does involve an assessment of the scope of protection affordedby the exclusive rights conferred by title and a judgement of whether that scope extends to cover theallegedly infringing acts.

Unlike the issue of validity, there is no element of public record involved nor is there any question ofcompliance with statutory criteria which a public authority is responsible for overseeing. Rather, it is aquestion of statutory interpretation.

In the case of intellectual property titles that are not the subject of public record, the arbitrability ofentitlement to that title does not seem to raise any objections of Public policy. The state does not assignto itself a responsibility for recording the title and recording ownership with respect to it in a publicregister in such a way that third parties are alerted to the proprietary interest in the subject of that title.

In such circumstances the owner may enjoy the right to empower an arbitral tribunal to decide between


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itself and another party the question of entitlement to the title and to the exploitation of the exclusiverights conferred by that title. Certainly the Tribunal du Commerce de Paris affirmed the arbitrability ofa dispute concerning the entitlement to a computer program protected by copyright.28

The agreement to arbitrate evidences, inter alia, the consent of the parties to the agreement to submit toarbitration and the subject matter that is to be or may be arbitrated. This description of subject mattermay be broad, for example where future disputes are referred, or express where a particular existingdispute is submitted.

A fundamental concept in arbitration, whether domestic or international, is party autonomy – but it mustbe clearly recognised that such autonomy is not unlimited.

Although it is true to say that most national laws give greater freedom in international arbitration thandomestic arbitrations, it is clearly not correct in either case to assume that such freedom is unlimitedand that party agreement as to certain matters in relation to an arbitration is sacrosanct.

Party autonomy exists only to the extent that the applicable law allows.

Every state or community with a separate legal system has, to varying degrees, codified and uncodifiedlaw. Such law reflects the basic convictions and values of that state or community.

Natural Justice

Both the International Arbitration Act and the new Domestic Acts as stated above have, as a provision,that the ‘rules of natural justice’ must be applied in connection with the making of the award.

The term ‘rules of natural justice’ is not defined but essentially has, as principles, two limbs –

(a) that a party is to be given a reasonable opportunity to present its case; and

(b) it must be made fully aware of the case against it.

A further extension is that the arbitral tribunal acts without bias or impediment such as lack ofindependence.

Confidentiality

The judgement of the High Court of Australia in Esso v Plowman29 was greeted with disbelief andcriticism both within Australia and internationally.

One of the rationales supporting ‘arbitration’ prior to that judgement was confidentiality and privacy.

28 VDSI v L’Office Francais de Prestation (LFP) Tribunal du Commerce de Paris 17th Eme Ch March 30 199329 Esso Australia Resources Limited v Plowman (1995) 183 CLR 10


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Certainty of confidentiality in most circumstances is now provided in the new Domestic Acts30 and theInternational Arbitration Act31 bringing Australia back into line with the generally (but not totally)accepted view in the rest of the world.

Consolidation

Consistent with a view held in Australia that a provision similar to the curial concept of joining thirdparties, both the International Arbitration Act and the new Domestic Acts provide for ‘Consolidation’32

and must be interpreted as public policy.

This flies in the face of the almost universal concept of arbitration as arising from the exercise ofautonomy of the parties and privity of contract.

In purporting to adopt the UNCITRAL Model law as the basis of both international and domesticarbitration in Australia, legislators have not had regard to the provisions of Art 17 of the complimentaryUNCITRAL Arbitration Rules which reads as follows:

“1. Subject to these rules, the arbitral tribunal may conduct the arbitration in suchmanner as it considers appropriate, provided that at an appropriate stage of theproceedings each party is given a reasonable opportunity of presenting its case.The arbitral tribunal, in exercising its discretion, shall conduct the proceedingsso as to avoid unnecessary delay and expense and to provide a fair and efficientprocess for resolving the parties’ dispute.

“2. As soon as practicable after its constitution and after inviting the parties to expresstheir views, the arbitral tribunal shall establish the provisional timetable of thearbitration. The arbitral tribunal may, at any time, after inviting the parties toexpress their views, extend or abridge any period of time prescribed under theseRules or agreed by the parties.

“3. If at an appropriate stage of the proceedings any party so requests, the arbitraltribunal shall hold hearings for the presentation of evidence by witnesses,including expert witnesses, or for oral argument. In the absence of such a request,the arbitral tribunal shall decide whether to hold such hearings or whether theproceedings shall be conducted on the basis of document and other materials.

30 At s27E Disclosure of Confidential Information s27F Circumstances in which confidential information may be disclosed s27G Arbitral tribunal may allow disclosure of confidential information in certain circumstances s27H The Court may prohibit disclosure of confidential information in certain circumstances s27I The Court may allow disclosure of confidential information in certain circumstances31 At s23C Disclosure of confidential information s23D Circumstances in which confidential information may be disclosed s23E Arbitral Tribunal may allow disclosure in certain circumstances s23F Court may prohibit disclosure in certain circumstances s23G Court may allow disclosure in certain circumstances32 s27C Consolidation of arbitral proceedings


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“4. All communications to the arbitral tribunal by one party shall be communicatedby that party to all other parties. Such communications shall be made at the sametime, except as otherwise permitted by the arbitral tribunal if it may do so underapplicable law.

“5. The arbitral tribunal may, at the request of any party, allow one or more thirdpersons to be joined in the arbitration as a party provided such person is a partyto the arbitration agreement, unless the arbitral tribunal finds, after giving allparties, including the person or persons to be joined, the opportunity to be heard,that joinder should not be permitted because of prejudice to any of those parties.The arbitral tribunal may make a single award or several awards in respect of allparties so involved in the arbitration.”

clearly maintaining the principle that to be joined as a party or to consolidate proceedings the relevantparties must be subscribers to the initiating arbitration clause.

Non Arbitral Dispute Resolution

One of the most controversial aspects of the new Domestic Acts and a reflection of Australian publicpolicy generally is the inclusion by s27D Power of arbitrator to act as mediator, conciliator or other non-arbitral intermediary.

This extends the ever growing public policy of resolution of disputes without recourse to the publiclyfunded curial system and in that regard is seen as a means of reducing public cost and increasing accessto and efficiency of the court system.

This provision in part reflects the provisions of s27 in the “uniform” Acts but is significantly moreproscriptive. Anecdotally, the s27 provisions were rarely used.

By s2A of the new Domestic Acts that purports to rely significantly upon the UNCITRAL Model Lawon arbitration both generally and as adopted by the Federal International Commercial Arbitration Act1974. There is no such or like provision for mediation in the UNCITRAL Model or Arbitration Rulesand for good reason. Arbitration and mediation etc are distinctly different processes and should berecognised as such and separated.

The extent and complexity of this section and the simple fact that other than by the new Domestic Actsmediation is not related to or relevant to arbitration does not support its inclusion in the new DomesticActs.

That the adoption of the Model Law in Hong Kong and Singapore includes a mediatory provision is notrelevant to Australia and is not necessarily reflective of best practice.

Further, in Australia there exists a National Mediator Accreditation Scheme (NMAS) which, under theauspices of the National Alternative Dispute Resolution Advisory Council (NADRAC), was establishedunder the imprimatur of the Federal Attorney General’s Department.


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Whilst it is not presently mandatory that all mediators be accredited there is inconsistency between theArbitration Act provisions and the strong trend in Australia for mediators to be trained and approved.

NMAS accreditation is increasingly being required for mediators acting in court annexed mediationsand there is a strong move to make accreditation a pre-requisite to acting generally as a mediator inAustralia.

The mediating role and the arbitral role require different high level skills and abilities, knowledge andexpertise.

To presume dual capacity in a single person is, in my view, misconceived and will create more problemsthan it solves. Parties are free to mediate, conciliate or otherwise seek to settle their dispute by anyregime whatsoever.

Awards contrary to Public Policy

Both the International Arbitration Act and the new Domestic Acts provide that an Award may be setaside if that Award is “contrary to public policy”.33

The public policy exception is also contained in Article V(2)(b) of the New York Convention to whichAustralia subscribes.

It should be noted that this provision is discretionary and although not the subject of substantialexperience in application in Australia, is controversial on an international level.

An arbitrator’s duties include the publishing of an award which satisfies the requirements of being capableof final enforcement.

In that context, to what extent, if any, should an arbitrator go outside a collective bargaining agreementgiving rise to the arbitration?

Further, to what extent is an arbitrator compelled to deal with a public policy defence?

In arbitration, the likely first step in prosecuting a public policy defence will likely be a challenge to thearbitrator’s jurisdiction.

A recent case in NSW34 dealt with a challenge to an arbitrator’s jurisdiction on grounds that the subjectmatter of the dispute referred to arbitration was non-arbitrable as being a matter concerning intellectualproperty, that is, as being in relation to patents.35

The court held36 that the arbitrator’s decision seizing jurisdiction was valid as the dispute referred toarbitration did not require the arbitrator to make a declaration as to eligibility or grant of a patent, but ineffect related to hypothetical or future liability to pay licence fees.

33 “of the State” in the case of Part 7534(2)(b)(ii) of the new Domestic Acts and Art 36 1 b (ii) of the International Act34 Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 268 (1st April 2011)35 see para 3(b) supra on non-arbitrability36 Hammerschlag J


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If, as postulated above, enforceability is to be ultimately the test of the adequacy of an Award then publicpolicy should be a basis of consideration by an arbitrator whether or not raised as a defence. However,such a statement can only have validity if there is a clear and unequivocal statement or identification ofthe relevant Public policy at the particular time which is not always possible.

In the case of international arbitration should, as a matter of proper practice, an arbitrator consider publicpolicy in the nation state where enforcement is likely to be sought?

It is suggested that this provision, although consistent with like provisions in the UNCITRAL ModelLaw upon which both the International and new Domestic Acts are based, is and will remaincontroversial.

Arbitrators and, more particularly, courts in dealing with public policy ground for refusing enforcement,or the courts on their own volition in raising such a ground, should exercise discretion very narrowlyand restrictively to ensure the will of the parties in electing arbitration as the dispute resolutionmechanism, is not overruled by a whimsical arbitrator or court.

Enforcement

Enforcement of an award under the “uniform” Domestic Acts is provided at s33 in the following terms–

“An award made under an arbitration agreement may, by leave of the Court, be enforcedin the same manner as a judgment or order of the court to the same effect, and whereleave is so given, judgment may be entered in the terms of the award.”

and in the new Domestic Acts at Part 8 s35 and the International Act (Model Law Art 35) in the followingterms:

(1) An arbitral award, irrespective of the State or Territory in which it was made, isto be recognised in this State as binding and, on application in writing to theCourt, is to be enforced subject to the provisions of this section and section 36.

(2) The party relying on an award or applying for its enforcement must supply theoriginal award or a copy of the original award.

(3) If the award is not made in English, the Court may request the party to supply atranslation of it into English.

Note: So much of Art 35 (2) of the Model Law as provides for the translation of an awardthat is not in the official language of the enforcing State has been modified.

In transnational disputes the two principal modern conventions or standards governing internationalcommercial arbitrations are the UNCITRAL Convention on Recognition and Enforcement of ForeignArbitral Awards (New York Convention)37 and the UNCITRAL Model Law.

37 Adopted by the United Nations Conference on International Commercial Arbitration and made in New York 10 June1958 [Treaty series (1959) Vol 330 No 4739 at 38]


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By Article 11.1 of the New York Convention there is set forth the obligation for a contracting state torecognise and give an effect to an arbitration agreement which satisfies the following conditions

“(i) is an agreement in writing

(ii) deals with disputes or differences which have arisen or which may arise betweenthe parties

(iii) the differences arising in respect of a defined legal relationship, whethercontractual or not

(iv) the differences concern subject matter which is capable of settlement byarbitration.”

By the provisions of Article V(1) there are effectively added a further two conditions. Recognition andenforcement can be denied if they are positively expressed to the contrary by proof adduced by the partyopposing recognition and enforcement.

“(v) That the parties to the arbitration agreement have legal capacity under theapplicable law.

(vi) The arbitration agreement is valid under the substantive law applied by theparties or if no such indication of substantive law, the law of the country wherethe award was made.”

It is the condition set forth in (iv) above which gives rise to the concept of arbitrability.

One of the two reservations available to subscribers to the New York Convention is the limiting of theobligations of recognition and enforcement by contracting states to awards in respect of differencesarising out of legal relationships, whether contractual or not, which are considered commercial underthe national law of that state.38

Under Article V(2) of the Convention there is provided that a court considering an application forrecognition and enforcement of an international arbitral award may refuse recognition and enforcementif it finds

(a) the subject matter of the difference is not capable of settlement by arbitration under the law of thatcountry; or

(b) the recognition or enforcement of the award would be contrary to public policy of that country.

The Model Law, as distinct from the provisions for recognition or enforcement of a ‘foreign’ arbitralaward provided by the New York Convention, provides for recognition or enforcement irrespective ofthe country in which it was made.39

38 Convention on the Recognition and Enforcement of Foreign Arbitral Awards Article 1 Section 339 UNCITRAL Model Law Article 36(1)


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Thus, recognition or enforcement is available under the Model Law of an award made in the country inwhich recognition and enforcement is sought if that country has adopted the Model Law. The ModelLaw provisions are effectively in identical terms to those provided in the New York Convention as arethe grounds for refusal of recognition and enforcement.

The issue of public policy in arbitrability is relevant at the commencement of arbitral proceedings goingto jurisdiction of the arbitral tribunal and at the conclusion of the proceedings when enforcement issought, whether a domestic or international award.

Conclusion

The interaction between public law and private law goes to the heart of public policy in arbitration.

That some of the recent amendments to or creation of arbitration statute in Australia are ill-conceived,misinterpreted or impractical does nevertheless change the current public policy of Australia as it appliesto arbitration.

Despite a view presently widely taken by many in Australia that any flaws in the new legislation can belater corrected, past experience dictates that later correction by our political masters is unlikely to occurin the foreseeable future. Australian public policy as it applies to arbitration hopefully will continue todevelop and may be the salvation of unsatisfactory aspects of the new arbitration


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Enforceability of Online Consumer

Arbitration Clauses in the Context of

the Australian Competition and

Consumer Act Chinthaka Liyanage1

Abstract

The enforcement of mandatory online consumer arbitration clauses largely depends on the conditionsof the national laws of each country in the absence of an internationally recognised legal framework.Enforcement of such clauses may be difficult in the current legal environment. The challenge is whetherthe current legal system and the judicial system can move swiftly and make well considered changes inorder to respond to a situation where the online consumer may now be confused and disempowered bythe lack of sufficient regulations or clear judicial guidelines in respect of online consumer arbitrationclauses. The purpose of this article is to examine the appropriateness of the Australian legal response,especially the Competition and Consumer Act 2010 (Cth) (CCA), in regards to the area of onlineconsumer arbitration clauses which are embedded in online standard form contracts in the fast-growingcross-border business-to-consumer electronic market.

‘The law is thus a tool that can be used to reassure cyber-consumers, and a tool thatcan reinforce confidence in the e-economy, if it respects its role of protecting the weakestamong us’.2

Introduction

The electronic market has contributed to the development of online standard form contracts in diversesections of the sale of goods and services, especially in the areas such as selling of software and deliveryof services online. The importance of growing these new online standard form contracts, which aretailored to online transactions between businesses and consumers (B2C),3 can be considered as a part ofthe evolving electronic commerce market. Unfortunately, the incorporation of mandatory arbitrationclauses for the resolution of cross-border electronic-commerce disputes within online standard formcontracts between online business-people and online consumers has created a debate over the viability.

1 Kananke Chinthaka Liyanage (PhD Research Student - La Trobe University – Melbourne - Australia) - Lecturer in LawUniversity of Colombo, Sri Lanka. My sincere thanks go to both Professors Tania Sourdin and Jianfu Chen for theirvaluable comments on a previous draft of this paper. This is a revised paper of the paper presented at jointIAMA/AMINZ Conference, Christchurch, New Zealand, August 2010.

2 Vincent Gautrais, ‘The Colour of E-consent’ (2003-2004) 1 University of Ottawa Law & Technology Journal 212. 3 see Lee A Bygrave, Online Dispute Resolution – What it Means for Consumers, Paper presented at a conference entitled

‘Domain Name Systems and Internet Governance’, (2002), p. 2,<http://folk.uio.no/lee/oldpage/articles/Bygrave_ODR.pdf> last visited 07 May 2012.


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4 See Donna M. Bates, ‘A Consumer’s Dream or Pandora’s Box: Is Arbitration a Viable Option for Cross-Border ConsumerDisputes?’ (2004) 27(2) Fordham International Law Journal; see also Kevin R. Casey, ‘Mandatory Consumer Arbitration’(2009) 17(8) The Metropolitan Corporate Counsel, <http://www.stradley.com/bios.php?action=publications&id=17> lastvisited 18 July 2011; see John Adams, ‘Digital Age Standard Form Contracts under Australian Law: “Wrap” agreements,Exclusive Jurisdiction, and Binding Arbitration Clauses’ (2004) 13(3) Pacific Rim Law & Policy Journal; see also Alan S.Kaplinsky, The Use of Pre-Dispute Arbitration Agreements by Consumer Financial Services Providers (2004)<http://www.afsaonline.org/CMS/fileREPOSITORY/Arbitration%20-%20Pros%20and%20Cons.pdf> last visited 04 May2012; see also Christine Riefa, Uncovering the dangers lurking below the surface of European consumer arbitration,Working Paper (2008) <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1354590> last visited 19 July 2011; seealso Edward Brunet, Richard E. Speidel, Jean R. Sternlight and Stephen J. Ware, Arbitration Law in America: a CriticalAssessment (Cambridge University Press, 2006).

5 See Casey, above n 4; see also Shelley McGill, ‘Consumer Arbitration Clause Enforcement: A Balanced LegislativeResponse’ (2010) 47 (3) American Business Law Journal; Julia Hörnle, ‘Legal Controls on the Use of Arbitration Clausein B2C E-Commerce Contracts’ (2008) 2(1) Masaryk University Journal of Law and Technology.

6 The Volume 3, Schedule 2, Part 2-3, of the Competition and Consumer Act 2010 (Cth) (CCA); “It is important thatagreements reached at mediation and other ADR processes should be able to be enforced, subject to other statutoryprotections such as those given by, for example, the Trade Practices Act 1974 and the Fair Trading Acts in relation tomisleading and deceptive conduct and the protection available in cases of unfair contracts”. National AlternativeDispute Resolution Advisory Council Legislating for alternative dispute resolution, A guide for government policy-makers and legal drafters November (2006) 96.

7 The Trade Practices Amendment (Australian Consumer Law) Bill 2009 Explanatory Memorandum, 104; “On 1 January2011 the Trade Practices Act 1974 was renamed the Competition and Consumer Act 2010” Australian Competition &Consumer Commission, For Consumers <http://www.accc.gov.au/content/index.phtml/itemId/815215> last visited 20July 2011.

8 See generally Slater & Gordon Lawyers, New national consumer laws to take effect on January 1, Media Release 2011<http://www.slatergordon.com.au/media/news-media-releases/new-consumer-laws-take-effect-jan1> last visited 04 May2012; The Trade Practices Committee of the Business Law Section of the Law Council of Australia, Submission to theSenate Standing Committee on Economics on the Trade Practices Amendment (Australian Consumer Law) Bill 2009<http://www.lawcouncil.asn.au/shadomx/apps/fms/fmsdownload.cfm?file_uuid=2BBE593D-1E4F-17FA-D2DB-28442476AB9D&siteName=lca> last visited 04 May 2012.

9 See, Redchip lawyers, New Consumer Protection Legislation <http://www.redchip.com.au/news/new-consumer-protection-legislation> last visited 04 May 2012.

There is a considerable literature both for and against the use of mandatory consumer arbitration clausesin standard form contracts.4 These kinds of discordant views can undermine the development of onlineconsumer arbitration as a viable dispute-resolution mechanism for the resolution of cross-borderelectronic-commerce disputes which arise in the B2C contractual setting (B2C e-commerce disputes).However, new legislative measures or existing laws have been adopted and/or adapted for either banningsome aspects of mandatory online consumer arbitration awards or imposing limitations on the validity ofsuch clauses in various jurisdictions.5

As far as the Australian legal response is concerned in terms of online consumer arbitration clauses, theunfair contract terms-related legal framework under the CCA can be considered applicable to the area ofonline consumer arbitration clauses in Australia.6 The objective of the new consumer protection law asoutlined in the Trade Practices Amendment (Australian Consumer Law) Bill 2009 indicates that, “theobject of the TPA is to enhance the welfare of Australians through the promotion of competition and fairtrading and provision for consumer protection”.7 The CCA has been welcomed as a positive step towardsprotecting consumer rights in Australia.8 This is designed to establish a uniform consumer protection legalframework9 and it is also recognised that “the Australian Consumer Law (ACL) is a key part of the


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regulatory reforms of the Council of Australian Governments (COAG) to deliver a seamless nationaleconomy”.10

The purpose of this paper is to explore the effectiveness of the unfair contract terms-related legalframework of the CCA in regards to the area of online consumer arbitration clauses used for the B2C e-commerce disputes. The following discussion identifies four major problematic areas which arguablyhave the potential to undermine the effectiveness of the existing legal framework, especially when it isapplied to online consumer arbitration clauses. The four problematic areas are: arbitrability; definitionalissues; recognition of the role of the national court; and the technological neutrality of the CCA. Due tothese concerns, this paper further argues that it is important to adopt an online consumer arbitrationclauses-specific legal and institutional approach in Australia. For that purpose, some reforms are suggestedwhich have the potential to overcome these problematic areas of the CCA and produce a clear andpragmatic legal approach to online consumer arbitration clauses in Australia.

Arbitrability

Before moving to the application of CCA to the online consumer arbitration clauses, it is important tolook at the legal position prior to the enactment of the CCA. The interesting feature of the concept ofarbitrability is that it lacks specific definition11 and, as a result, the scope of arbitrability can be widenedor narrowed by the judiciary. It seems that the arbitrability of consumer disputes must be determined bylooking at how areas such as public policy and the validity of arbitral clauses which underpin arbitrationlaws12 and consumer protection laws are defined by courts in Australia. Judicial authorities on thearbitrability of claims come under the Trade Practices Act 1974, especially in the business to businesssetting, can be divided into two categories. One line of authorities adopts a liberal approach and holds theposition that some claims under consumer protection laws can be arbitrated;13 in other words, to that

10 “The ACL replaces provisions spread across 20 State and Territory Acts and in the Trade Practices Act 1974 (TPA)”.Australian Government, the Australian Consumer Law, An introduction, (2010), iii<http://www.consumerlaw.gov.au/content/Content.aspx?doc=the_acl/legislation.htm> last visited 04 May 2012; “TheProductivity Commission (PC) estimated that this reform could provide benefits to the Australian community of between$1.5 billion and $4.5 billion a year”. Commonwealth of Australia, the Australian Consumer Law a guide to provisions,(2010), ix <http://www.consumerlaw.gov.au/content/Content.aspx?doc=the_acl/legislation.htm> last visited 04 May2012.

11 “The term arbitrability can be misleading.” Michael Hwang S.C. and Shaun Lee, ‘Survey of South East Asian Nations onthe Application of the New York Convention’ (2008) 25(6), Journal of International Arbitration 873, 877; some disputesare recognised as non-arbitrable, for example, see AA de Fina OAM, Public Policy and Arbitration in Australia, theInstitute of Arbitrators & Mediators National Conference, (Sydney 16-18 June 2011) 5.

12 See “Within the context of the New York Convention and of the Model Law it is generally accepted that arbitrability formspart of the general concept of public policy and that Article V(2)(a) of the New York Convention, which refers to objectivearbitrability separately from public policy as referred to in Article V(2)(b), can be deemed superfluous”. Ibid Fina 4.

13 See also Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192 and Michael Underdown,International Arbitration Insights, Arbitrating competition law disputes (2010)<http://www.claytonutz.com/publications/newsletters/international_arbitration_insights/20100322/arbitrating_competition_law_disputes.page> last visited 18 July 2011; see S R Luttrell, ‘Public Policy Conflicts in the Arbitrability of the TradePractices Act 1974 (Cth)- A Comment on Clough Engineering’ (2007) 4 Macquarie Journal of Business Law; see alsoSam Luttrell, ‘Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192’ (2007) 21 Australian andNew Zealand Maritime Law Journal; See also Doug Jones, International Commercial Arbitration and Australia,Australian-European Lawyers Conference National Museum of Australia, Canberra 2-3 March 2007<http://www.claytonutz.com/docs/International_commercial_arbitration_and_Australia.PDF> last visited 17 May 2011.


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extent, consumer protection laws are not mandatory. The other line of authorities recognises the fact thatconsumer protection laws are mandatory.14

The question is: how far these features are reflected in the CCA when its application is examined in thecontext of B2C e-commerce disputes? It can be argued that there is no clear approach as to thearbitrability of online arbitration clause embedded in a B2C contract under the CCA. This propositioncan be supported by adducing several elements of the CCA. First, the CCA does not exclude the onlineconsumer arbitration clauses.15 Second, there is no clear definition of the concept of abitrability in eitherthe CCA or arbitration-related laws in Australia in specific terms. Instead, the validity of such clausescan be tested against fairness and this has been incorporated within the CCA under a general contractuallaw-related legal framework. Third, the court is the institution which has been given the power to decidethe validity of such online consumer arbitration clauses; in other words, the unfair contract terms-relatedlegal framework under the CCA in Australia seems to confer jurisdiction on courts to decide thearbitrability of online consumer arbitration clauses.16Additionally, it is worth mentioning that “the unfaircontract terms laws do not apply to a contract to supply goods or services or financial products or servicesfrom one business to another for business use”.17

Accordingly, it is reasonable to note that the CCA has left the definition of arbitrability undefined. Thefollowing discussion will further elaborate on the lack of a specific legal approach to regulating onlineconsumer arbitration clauses in Australia in the context of CCA.

Definitional issues

The determination of the validity of contractual terms remains unsettled and problematic when it isapplied to the area of online consumer arbitration clauses. More specifically, the question is howeffectively the CCA has responded in order to produce a balanced legal framework which suits the termsembedded in online standard form contracts18 from definitional point of view. It is important tocommence the discussion of definitional issues associated with the unfair terms-related legal frameworkof the CCA with the statement of Australian Information Industry Association, which seems to indicate

14 For example, “the remedy conferred by the Act, in respect to s 51 AA cannot be lost, whatever the parties agree in theircontract.” see Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd [2007] FCA 881,Paragraph 41, Ibid Luttrell,140-141; see also Ibid Underdown; see also Joachim Delaney and Katharina Lewis, ‘The Presumptive Approach to theConstruction of Arbitration Agreements and the Principle of Separability - English Law Post Fiona Trust and AustralianLaw Contrasted’ (2008) 31(1) University of New South Wales Law Journal.

15 See generally Jacqueline Downes, ‘The Australian Consumer Law – is it really a new era of consumer protection?’ (2011)19(1) Australian Journal of Competition and Consumer Law 13-15.

16 “Only a court can determine whether a term of a standard form consumer contract is unfair”. Australian Consumer Law,A guide to the unfair contract terms law, (2010) 23<http://www.consumerlaw.gov.au/content/Content.aspx?doc=the_acl/guidance.htm> last visited 04 May 2012.

17 Ibid 7. 18 Arno R. Lodder and John Zeleznikow, Enhanced Dispute Resolution Through the Use of Information Technology

(Cambridge University Press 2010) 64.


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the consequences of the uncertainty revolving around the meaning of “unfair” and “standard-form”:“consumer costs will rise as risks and uncertainties are priced-in by business”.19

Unfair contract terms

Under the CCA, the validity of a contract term can be challenged if two requirements are met i) “theterm is unfair”; and ii) “the contract is a standard form contract”.20 The presence of these two elementscan result in the term in question being void. Section 24 of the CCA articulates the scope of unfairnessin the following terms:

24 Meaning of unfair

(1) A term of a consumer contract is unfair if:

(a) it would cause a significant imbalance in the parties’ rights and obligationsarising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests ofthe party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it wereto be applied or relied on.21

Phrases such as “a significant imbalance in the parties’ rights and obligations arising under the contract”,“legitimate interests of the party”, and “cause detriment (whether financial or otherwise) to a party”have not been defined. Some elements of the test of fairness, such as “significant imbalance” and “causedetriment” are not immune from controversy.22 However, Section 24 (2) has vested discretionary powerin the court to determine fairness by taking into consideration “matters as it thinks relevant” in aparticular case, but there are elements that the court has to pay attention to in this process, for example:

19 Inquiry into the Trade Practices Amendment (Australian Consumer Law) Bill 2009, AIIA response to the SenateEconomics Legislation Committee, (2009), 2<https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=cf8550b2-a0e1-42b2-8b44-669fa2fee0d4>last visited 04 May 2012; see also Susan Schiavetta, ‘Does the Internet Occasion New Directions in ConsumerArbitration in the EU?’ (2004) 3 the Journal of Information, Law and Technology.

20 CCA, above n 6. 21 Ibid. 22 See Downes, above n 15, 13-15.


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Section 24

(2) In determining whether a term of a consumer contract is unfair under subsection(1), a court may take into account such matters as it thinks relevant, but must takeinto account the following:

(a) the extent to which the term is transparent;

(b) the contract as a whole.

(3) A term is transparent if the term is:

(a) expressed in reasonably plain language; and

(b) legible; and

(c) presented clearly; and

(d) readily available to any party affected by the term.

(4) For the purposes of subsection (1)(b), a term of a consumer contract is presumednot to be reasonably necessary in order to protect the legitimate interests of theparty who would be advantaged by the term, unless that party proves otherwise.23

Additionally, under the CCA, there is a list of examples which may fall into the category of unfairness.24

These examples are not an exhaustive list of unfair terms.25 The application of this legal framework hasbeen recognised to the extent that: “a powerful aspect of the new laws is that terms like these may be

23 CCA, above n 6.24 “(a) a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of

the contract”, “(b) a term that permits, or has the effect of permitting, one party (but not another party) to terminate thecontract”, “(c) a term that penalises, or has the effect of penalising, one party (but not another party) for a breach ortermination of the contract”, “(d) a term that permits, or has the effect of permitting, one party (but not another party) tovary the terms of the contract”, “(e) a term that permits, or has the effect of permitting, one party (but not another party)to renew or not renew the contract”, “(f) a term that permits, or has the effect of permitting, one party to vary the upfrontprice payable under the contract without the right of another party to terminate the contract”, “(g) a term that permits, orhas the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, orthe interest in land to be sold or granted, under the contract”, “(h) a term that permits, or has the effect of permitting,one party unilaterally to determine whether the contract has been breached or to interpret its meaning”, “(i) a term thatlimits, or has the effect of limiting, one party’s vicarious liability for its agents”, “(j) a term that permits, or has the effect ofpermitting, one party to assign the contract to the detriment of another party without that other party’s consent”, “(k) aterm that limits, or has the effect of limiting, one party’s right to sue another party”, “(l) a term that limits, or has the effectof limiting, the evidence one party can adduce in proceedings relating to the contract”, “(m) a term that imposes, or hasthe effect of imposing, the evidential burden on one party in proceedings relating to the contract” and “(n) a term of akind, or a term that has an effect of a kind, prescribed by the regulations”. Section 25 of the CCA, above n 6.

25 Australian Consumer Law, above n 16, 14.


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unfair even if a consumer has read and agreed to their inclusion in the contract”.26 It is also evident thatthese examples are not mandatory for the court to follow. For example, the wording of Section 25(1)stipulates that, “without limiting section 24, the following are examples of the kinds of terms of aconsumer contract that may be unfair”.27 This means that these terms may or may not be unfair in anyparticular case in dispute.

Standard form contracts

A similarly vague approach can be seen in terms of the scope of the standard form contracts under theCCA. The scope of standard form contracts has been outlined in the document titled ‘A guide to theunfair contract terms law’ in the following terms:

The unfair contract terms laws do not define ‘standard form contract’. However, in broadterms a standard form contract will typically be one that has been prepared by one partyto the contract and is not subject to negotiation between the parties – that is, it is offeredon a ‘take it or leave it’ basis. Standard form contracts are typically used for the supplyof goods and services to consumers in many industries...28

This guide further lists several industries, for example, “telecommunications”, “finance”, “domesticbuilding”, “gyms”, “motor vehicles”, “travel” and “utilities”.29 Brennan notes that “whether a contractis a standard form contract will be a question to be decided case by case”.30 Thus, the CCA lacks adefinition of standard form contracts and does not list the categories of standards form contracts whichare recognised in the e-commerce market. However, Section 27(2) notes that, “in determining whethera contract is a standard form contract, a court may take into account such matters as it thinks relevant,but must take into account the following”.31 There is given a list of circumstances that courts must takeinto consideration when determining whether a contract is a standard form contract or not.32

26 Paul Gillett, ‘Unfair Contract Terms’ (2010) 22(2) Legaldate 6<http://www.nhs.vic.edu.au/library/legaldate/LegalDate%20Vol%2022%20No%202%20May%202010.pdf> last visited04 May 2012; see also Jeannie Paterson, ‘The Australian Unfair Contract Terms Law: The Rise of Substantive Unfairnessas a Ground for Review of Standard Form Consumer Contracts, Critique and Comment’ (2009) 33(3) MelbourneUniversity Law Review.

27 CCA, above n 6.28 Australian Consumer Law, above n 16, 8.29 Ibid.30 Tom Brennan, the Australian Consumer Law (2010), 5.31 CCA, above n 6.32 “(a) whether one of the parties has all or most of the bargaining power relating to the transaction”, “(b) whether the

contract was prepared by one party before any discussion relating to the transaction occurred between the parties”,“(c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than theterms referred to in section 26(1)) in the form in which they were presented”, “(d) whether another party was given aneffective opportunity to negotiate the terms of the contract that were not the terms referred to in section 26(1)”, “(e)whether the terms of the contract (other than the terms referred to in section 26(1)) take into account the specificcharacteristics of another party or the particular transaction” and “(f) any other matter prescribed by the regulations”27(2) of the CCA, above n 6.


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In the offline context, there are agreements such as ‘standard-form’ or ‘contract of adhesion’, that arelabelled non-negotiated contracts (‘take it or leave it’).33 In the online context, online binding arbitrationclauses also become part of online standard form contracts. Lemley notes that, “In the onlineenvironment, these standard form agreements take the form of clickwrap licenses—agreements thatvisitors to a Web site sign electronically by clicking “I agree” to a standard set of terms”.34 Online pre-dispute arbitration clauses are incorporated even in these online ‘clickwrap’ ‘browsewrap’ and ‘shrink-wrap’35 agreements, raising concerns about the validity of the online contract and the possibledisadvantages to online consumers. The CCA does not provide clear answers as to whether all thesestandards form contracts are covered by current law. In addition, there are no defined boundaries foreach of these standard form contracts. In fact, some guidance can be found in the ‘A guide to the unfaircontract terms law’ which refers only to contracts which are made by, “clicking an ‘I agree’ button on aweb page”.36

Moreover, there is no clear definition of the phrase, “an effective opportunity to negotiate the terms ofthe contract”, which comes under Section, 27(2)(d).37 Similar uncertainty has been recognised in someof the decisions made under the Fair Trading Act 1999 in Victoria, for example:

Section 32X requires me to consider whether or not the terms have been individuallynegotiated. Although no guidance on how this should be applied is found in the Act, itappears to me to reflect the commonsense view that terms of a consumer contract whichhave been the subject of genuine negotiation should not be lightly declared unfair. Thislegislation is designed to protect consumers from unfair contracts, not to allow a partyto a contract who has genuinely reflected on its terms and negotiated them, to be releasedfrom a contract term from which he or she later wishes to resile.38

33 See Dale Clapperton and Stephen Corones, ‘Unfair terms in “clickwrap” and other electronic contracts’ (2007) 35 (3)Australian Business Law Review; see also Wayne Barnes, ‘Consumer Assent to Standard Form Contracts and the VotingAnalogy’ (2010) 112 (3) West Virginia Law Review.

34 Mark A. Lemley, ‘Terms of Use’ (2006) 91(2) ‘Minnesota Law Review’ 459, 465-466. 35 See Rachel Cormier Anderson, ‘Enforcement of Contractual Terms in Clickwrap Agreements: Courts Refusing to Enforce

Forum Selection and Binding Arbitration Clauses’ (2007) 3 (3) Shidler Journal of Law, Commerce & Technology; seealso, Ibid, Lemley; “In cases of “clickwrap,” a form of transaction common for on-line purchases and the on-linedownloading of (free or paid) software. With “clickwrap” the transaction will not go forward unless and until theconsumer clicks a button indicating “I agree” (or similar terms of express assent) after the statement of terms andconditions”. ““Browsewrap” involves a presentation of terms on a Web site with the statement that some further action(continuing use of a site, downloading software, etc.) would be construed as acceptance, without any need of expressassent. The terms themselves may be displayed prominently in a way a user would be unlikely to miss, or the displaypage might merely mention, and perhaps not even in a prominent way, that terms can be found elsewhere on the site”.Jane K. Winn & Brian H. Bix, ‘Diverging Perspectives on Electronic Contracting in the U.S. and EU’ (2006) 54 (1&2)Cleveland State Law Review 175, 176-178; Further, “the manufacturer normally places the terms and conditions of thesoftware license inside a box with the software disk or CD shrink-wrapped in plastic. The customer is then able to seethrough the plastic or on the outside of the envelope some of the terms of the agreement. The customer is advised thatby opening the envelope or the plastic wrap, he or she is deemed to have accepted the contract inside and is bound byits terms”. Jiao Xue, ‘A Comparative Study of Shrink-Wrap License’ (2009) 2 (2) Journal of Politics and Law 86, 86.

36 Australian Consumer Law, above n 16, 7. 37 CCA, above n 6. 38 Director of Consumer Affairs Victoria v Craig Langley Pty Ltd & Matrix Pilates & Yoga Pty Ltd (Civil Claims) [2008] VCAT

482 Paragraph 66.


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Moreover, in the case of Director of Consumer Affairs Victoria v Backloads.com Pty Ltd, Justice Harbisonstates as follows:

I have suggested in previous cases that the question of whether the term was individuallynegotiated might be taken into account in the sense that if a term was in fact individuallynegotiated its apparent unfairness on its face may be discounted because of theknowledge that the parties had each voluntarily entered into the term after informednegotiation.39

In view of this discussion, it can also be argued that current Australian law is not a barrier to the existenceof post-dispute arbitration clauses, even where the initial contract is a standard form contract. This ismainly due to the fact that the validity of a contractual term depends on the satisfaction of the fairnessof such a term and the fulfilment of the requirements of a standard form contract as recognised by theCCA. However, if there are online standard form contracts which incorporate arbitration clauses evenafter the initial standard form contract without notice to the consumer, then, such arbitration clauses canbe challenged if such a term does not comply with the unfair contract terms law.40

This openness, of course, has the potential to expand the scope of online consumer arbitration with thechanges taking place in the e-commerce market place. On the contrary, such an approach arguably couldundermine the development of arbitration applying to new areas of disputes, or could affect the certaintyof law and create frustration in the minds of both consumers and business-people, especially in the crossborder e-commerce market, as to the actual limits imposed by the law over unfair contract terms inAustralia.

The role of the court

A consumer who is not satisfied with the terms of a contract may take the matter to a court. The role ofnational courts has been recognised as the major enforcer of unfair contract terms. The existing lawprovides discretionary power to courts that is reflected in the determination of the unfairness of a contractterm and standard form contract.41 The discretionary power conferred on the courts can be problematic,as it can make existing law unclear in terms of the boundaries of the law and may impact on the certaintyand consistency expected from the law.

Moreover, recognition of the access to courts through the unfair terms-related legal framework deservesa mention, as it has implications for the use of binding online consumer arbitration clauses. For example,Section 25(k) of the CCA stipulates, “a term that limits, or has the effect of limiting, one party’s right tosue another party”. Importantly, this term encompass, “terms that require a consumer to bring legalproceedings in a foreign court may also be unfair”.42 In this sense, access to court can be viewed as aprotective mechanism for the development of the use of online consumer arbitration clauses, rather than

39 Director of Consumer Affairs Victoria v Backloads.com Pty Ltd (Civil Claims) [2009] VCAT 754 (11 May 2009) Paragraph126.

40 See the scope of the section 25 of the CCA, above n 6; see also Downes, above n 15.41 CCA, above n 6. 42 Australian Consumer Law, above n 16, 21.


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as a barrier.

This developing trend does not contradict the overall intention of the consumer protection law which isembedded in Section 2 of the CCA: “the object of this Act is to enhance the welfare of Australiansthrough the promotion of competition and fair trading and provision for consumer protection”. Thus,the role of the courts in regards to the determination of the fairness of contractual terms and thepreservation of the right to access to courts are designed to protect vulnerable consumers againstbusiness-people and ensure the smooth functioning and development of fair and competitive tradingenvironment in Australia. Moreover, one can argue that the CCA has incorporated a presumption interms of standard form contracts that could be considered a positive element to reduce the burden ofcourt proceedings.43

The question is: can this access to court-related term be considered a barrier to the development ofmandatory online consumer arbitration clauses in Australia? The answer depends on the interpretationthat is given to the scope of this example, as this term is not considered mandatory in the CCA. Therefore,it can be argued that courts can decide the validity of online consumer arbitration clauses if they thinkit fair in the circumstances of each case, regardless of whether it is a binding online consumer arbitrationclause that may deny the right of access to courts.

The next question is whether the court’s involvement will produce an effective outcome, given theobjectives of consumer protection as recognised in the CCA as well the resolution of B2C e-commercedisputes through online arbitration. The court’s inappropriateness as an effective redress mechanism inregards to B2C e-commerce disputes will remain unresolved in the future. For example, Justice Martinpredicts that “the Australian legal system is generally perceived to be out of touch, expensive, slow,technical, complex, and in many respects incomprehensible. These are the areas of complaint which Ithink are most likely to be addressed over the next 12 years”.44

In fact, there are some compelling and salient reasons which make the national courts an inappropriateavenue of redress for the resolution of B2C e-commerce disputes. For example, the nature of dispute, itsvalue and the connection of the disputes with other jurisdictions can be cited. Importantly, since manydisputes that arise out of B2C cross-border e-commerce disputes are small-dollar disputes, it is doubtfulwhether the courts, which are costly, experience delay and have complex rules, are an appropriate forumfor the resolution of B2C e-commerce disputes. Parfitt rightly asserts that, “our court system isoverwhelmed with disputes and it can take years and thousands of dollars in legal fees to get a judgment,only to have it appealed and the process starts over”.45 The other problematic aspect is the enforcementof courts’ judgments across jurisdictions. The consumer protection-related literature provides an

43 Section 27 (1) of the Competition and Consumer Act 2010 (Cth) states that: “If a party to a proceeding alleges that acontract is a standard form contract, it is presumed to be a standard form contract unless another party to theproceeding proves otherwise”.

44 The Hon Wayne Martin, “Courts in 2020: Should they do things differently?” Australian Justice System in 2020, NationalJudicial College of Australia Conference 25 October 2008, Sydney, 4.<http://www.supremecourt.wa.gov.au/publications/pdf/Australian_Justice_System_in_2020_25102008.pdf> last visited04 May 2012.

45 Kelly Parfitt, Consumers Want to be in Europe; Corporations Want to be in the U.S.: How to Reform MandatoryConsumer Arbitration Agreements to be Fair to Both Parties, 2009, 26.


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appropriate example in this regard; “even if Australian consumer protection laws apply and an Australiancourt has jurisdiction over an overseas trader, it may be too difficult and/or too expensive to enforce ajudgment against a trader who has no assets in Australia”.46

Technology neutrality of the CCA

There are no specific legal provisions in regards to the technological neutrality of the CCA. As such, itis worthy referring to the literature developed under the TPA. Despite the lack of specific mention ofthe technology neutrality of the TPA, a Productivity Commission Inquiry Report states that, “the TPAand Fair Trading Acts are technology neutral in that they apply equally to online and offline consumertransactions”.47 Moreover, Shelly and Jackson note that, “consumer protection legislation applies equallywhether the sale occurs face to face, by telephone or over the Internet”.48 Arguably, a similar situationas recognised under the TPA in terms of technology neutrality can be equally applied to the CCA aswell, since the CCA also has no specific provision in this respect. In fact, it is important to note thatsome evidence is available to justify the view that the CCA has adopted a technology-neutral approach,for example, a contract can be made by, “signing a document”, “agreeing over the phone” or “clickingan ‘I agree’ button on a web page”.49 These elements can be considered supportive evidence to showthat not only contracts made in writing but also contracts made electronically can be considered validunder this legal framework. In this context, it is reasonable to conclude that the legislature has followeda technology-neutral approach when drafting CCA.50 However, this technology-neutral approach is notreflected in the mechanism adopted for the determination of the unfairness of a standard form contractterm in the CCA. As such, the application of CCA to B2C cross-border e-commerce contracts whichinvolve foreign online business and Australian online consumers is challenging.

As such, the application of CCA provisions in regards to online consumer arbitration clauses for B2Ce-commerce disputes can be problematic and as a result the protection offered to online consumers isnot effective. Additionally, it is important to note that there is a tendency to leave mandatory onlineconsumer arbitration clauses unchecked51 and unchallenged, if access to the court and its mechanismsis not designed in line with the B2C e-commerce disputes and online market realities. Until progressiveapproaches are adopted by the judiciary with the appropriate and timely legislative backing in terms ofregulation of online consumer arbitration clauses in Australia, CCA will remain problematic.

46 Elizabeth Beal, The Law Handbook, Your Practical guide to the law in Victoria, E-Commerce: Online Shopping<http://www.lawhandbook.org.au/handbook/ch10s04s05.php> last visited 04 May 2012.

47 Australian Government Productivity Commission, Review of Australia’s Consumer Policy Framework ProductivityCommission Inquiry Report, 2008 2(45), 312

<http://www.pc.gov.au/__data/assets/pdf_file/0008/79172/consumer2.pdf> last visited 04 May 2012. 48 Marita Shelly and Professor Margaret Jackson, ‘Doing Business with Consumers Online: Privacy, Security and the Law’

(2008) 17 (2) International Journal of Law and Information Technology 188. 49 Australian Consumer Law, above n 16, 7.50 See generally “Technologically specific regulation is likely to fail as the types of services being delivered and their

delivery mechanism is evolving rapidly”. Rob Nicholls, ACCC, Convergence: Benefits and risks to consumers andcitizens, 2010.

51 See also Llewellyn Joseph Gibbons, ‘Creating a Market for Justice; a Market Incentive Solution to Regulating the PlayingField: Judicial Deference, Judicial Review, Due Process, and Fair Play in Online Consumer Arbitration’ (2002) 23 (1)Northwestern Journal of International Law & Business


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Suggestions for a developed legal framework

Of course, it is not an easy task to demarcate or encompass all the possible unfair aspects of contractualterms, as they can exist in simple as well as complex factual situations. As such, there cannot be expectedto be a comprehensive piece of legislation in regards to the scope of unfair contractual terms embeddedin online standard form contracts. In fact, a more straightforward and focused approach is desirable tostrengthen the use of online consumer arbitration clauses given the complex nature of the e-commercemarket, online consumers’ knowledge and their capacity to bargain with online business-people locatedoutside consumers’ home countries and the need for a clear legal position for online business-peoplewhen they draft online consumer arbitration clauses.

In the ODR literature, two extreme approaches are excluded,

The final option is to ban arbitration in cyberspace between merchants and consumersor aggressively regulate it. Banning arbitration would result in consumers losing thecommunicative advantages of cyberspace for the purposes of dispute resolution. Further,in a global medium absent some overarching treaty or governmental body to resolvedisputes, arbitration may be the only practical choice for peace full quasi-judicial disputeresolution. Aggressively regulating arbitration in cyberspace would deny arbitration theflexibility that is its greatest advantage and deny arbitral processes to grow and developto take advantage of the constantly evolving technology. Either option will disadvantageconsumers and business in cyberspace without necessarily creating any correspondingadvantages.52

Then, the question is: what is the most appropriate way to regulate online consumer arbitration clausesincorporated in online standard form contract offering the benefits of online consumer arbitration forboth online consumers and online business-people? This paper advocates attention towards two specificareas that have the potential to produce more online business friendly and online consumer protectionmechanisms. The following changes are suggested as appropriate to making the existing law a viableapproach to the regulation of online consumer arbitration clauses in Australia.

Clear approach to mandatory arbitration clause

As far as the CCA provisions are concerned, it has general application to the area of contractualundertakings, rather than having a specific legal framework clarifying the legal validity of pre-disputearbitration clauses and post-dispute arbitration clauses. It appears that the new CCA has omitted tointroduce an explicit legal framework in regards to pre-dispute mandatory arbitration and post-disputemandatory arbitration clauses. Therefore, it is vital to introduce a clear legal approach to these two

52 Llewellyn Joseph Gibbons, Rusticum Judicium? ‘Private “Courts” Enforcing Private Law and Public Rights: RegulatingVirtual Arbitration in Cyberspace’ (1998) 24 (3) Ohio Northern University Law Review 792.


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categories of arbitration clauses through consumer protection law or arbitration law, which may beconsidered an important step towards approaching globally recognised standing in regards to mandatoryconsumer arbitration clauses.53

‘Black list’ and ‘Grey list’

As far as the CCA is concerned, drafters of the CCA could have adopted a “black list” within the “greylist” currently adopted.54 A “black list” of prohibited unfair terms of contract is one improvement thatcan be suggested: the submission made by Legal Aid New South Wales recommends the developmentof such a ‘black list’ in the Australian legal framework as well.55 The incorporation of a “black list” hasthe potential to prevent the testing of such terms before court as to fairness and also to provide somecertainty to the complex and evolving electronic contracts in the broader e-commerce market.56

The use of the eCourt strategy

The use of the government-sponsored electronic court (eCourt) for this purpose is a potential strategyfor achieving the desired objective of the unfair contractual terms-related legal framework of the CCAand making both online consumers and online business-people accessible. Such an approach seemspossible given the developments taking place in Australia as well as in other countries in the state-ownedcourt sector and increased attention towards developing internet and broadband-related infrastructurein most countries of the world.57

Recent technological developments being introduced into the national federal court system in Australiaprovide sufficient indication in regards to the possibility of embracing this model.58 The eCourt

53 See generally, Gibbons, above n 51; Adams, above n 4. 533; McGill, above n 5; It is also important to note that theAustralian legislature also needs to address other important issues such as “subject matter jurisdiction”, “class claims”,“costs”, “choice of law”, due process requirements, and the enforceability of online consumer arbitration awards basedon post-dispute mandatory arbitration clauses. .

54 Downes, above n 15, 17; see also Gerard Brody, the Law Handbook Your Practical guide to the law in Victoria,Australian Consumer Law <http://www.lawhandbook.org.au/handbook/ch12s03s01.php#Ch125Se61048> last visited 05May 2012.

55 See Legal Aid New South Wales, Response to the Australian Consumer Law: Consultation on Draft Unfair ContractTerms Provisions, Submission on behalf of Legal Aid NSW to the Competition and Consumer Policy Division of Treasury,2009, 2, 6-7 <http://archive.treasury.gov.au/documents/1547/PDF/NSW_Legal_Aid.pdf> last visited 04 May 2012.

56 Ibid. 57 For example, Australian Government, Department of Broadband, Communications and the Digital Economy, National

Broadband Network <http://www.dbcde.gov.au/broadband/national_broadband_network> visited 19 July 2011.58 Federal Court of Australia, eCourt, <http://www.fedcourt.gov.au/ecourt/ecourt_slide.html> last visited 19 July 2011; see

also Justice Brian Tamberlin, Online Dispute Resolution and the Courts, (2004) <http://www.odr.info/unforum2004/tamberlin.htm> last visited 19 July 2011.


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mechanism which exists in the Australian Federal Court includes facilities such as eLodgment59 andeCase Administration.60

Concluding remarks

In view of the overall discussion, it is evident that the legal framework incorporated in the AustralianCCA for the determination of the fairness of a term does not provide a clear and comprehensive legalframework in regards to the area of online consumer arbitration clauses. Reasons for this could be relatedto the complex nature of these contractual arrangements, the difficulty of protecting online consumerrights and business interests in the cross-border e-commerce context, and the complex and changing e-commerce market driven by various technological tools. This lack of clarity is not desirable in terms ofthe clarity expected by both online consumers and online business-people in order to adjust or preparetheir online agreements accordingly. The lack of specific and targeted regulatory approaches canexacerbate the situation by leaving the dominant players in the electronic commerce market to developmodels which favour them at the expense of vulnerable online consumers.

As an appropriate and workable solution to the uncertainties and problematic aspects that are associatedwith the existing legal framework, this paper advocates that the government-sponsored eCourt model,together with the required reforms to existing national consumer protection laws, should be developedin Australia. Such a move in regards to online consumer arbitration clauses will not undermine theAustralian legal approach to protecting the rights of online consumers and will provide an onlineconsumer arbitration friendly legal environment that has the potential to work nationally andinternationally.

59 Federal Court of Australia, eLodgment Federal Law <http://www.fedcourt.gov.au/ecourt/ecourt_elodgment.html> lastvisited 19 July 2011.

60 Federal Court of Australia, eCase Administration <https://ecourt.fedcourt.gov.au/caseadministration.aspx> last visited19 July 2011; see also Tania Sourdin, Alternative Dispute Resolution, (Lawbook Co. 3rd ed. 2008) 230; see for adetailed discussion Tania Sourdin and Chinthaka Liyanage, the chapter on “The Promise and Reality of Online DisputeResolution in Australia” (Edited by Mohamed S. Abdel Wahab, Ethan Katsh and Daniel Rainey, Online DisputeResolution: Theory and Practice: A Treatise on Technology and Dispute Resolution - Eleven International Publishing2012).


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Case NoteSugar Australia Pty Limited v Mackay Sugar Ltd

Khory McCormick1 and I-Ching Tseng2

Introduction

Under the Commercial Arbitration Act 1990 (Qld) (the Act), courts may set aside an award where thearbitrator has misconducted the proceedings under section 42.

In this case, the Supreme Court of Queensland (McMurdo J) was asked to determine whether the failureby the arbitrator to provide the applicant with an opportunity to address a point not raised by the partiesin their Points of Contention to the arbitrator (which defined the dispute between the parties) amountedto misconduct.

The Applicant (Sugar Australia) was successful in having the award set aside.

Facts

Sugar Australia is the manager of a joint venture which operates a refinery at Racecourse in Mackay.The Respondent Mackay Sugar is a Participant in the joint venture and holds a 25% interest in the jointventure. Sugar Australia owns and operates the sugar mill adjacent to the refinery. The mill supplies rawsugar required by the refinery.

The joint venture is currently governed by an agreement dated 20 April 2006 (the "JVA") made prior tothe deregulation of the scheme for the compulsory acquisition of raw sugar which had existed under theAct. The JVA anticipated and provided inter alia for the supply of raw sugar after deregulation.

"2.8 Sugar Acquisition – Following Deregulation

In the event that the compulsory acquisition of raw sugar under the Sugar Industry Act1991 (Qld) or other similar legislation in other states or territories of Australia or anyAct in substitution or any similar Act in any other state or territory is abolished in wholeor in part or is altered in such a way as to enable Mackay or CSR to sell either all orpart of its raw sugar produced in Queensland directly to the Manager ("Abolition") thenthe provision of Schedule 2 shall apply."

1 Khory McCormick is a Partner and Associate at Minter Ellison's Commercial Advisory and Dispute Resolution Group. He had carriage of the matter on behalf of Sugar Australia Pty Limited.

2 I-Ching Tseng is an associate at Minter Ellison's Commercial Advisory and Dispute Resolution Group.


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The relevant parts of Schedule 2 to the JVA state:

"Schedule 2

RAW SUGAR PURCHASE ARRANGEMENTS FOLLOWING ABOLITION

This schedule sets out the principles under which the Participants of the Joint Venturewill purchase their raw sugar requirements, for the Racecourse Refinery("Requirements") in the event of Abolition. "Abolition" has the meaning given in clause2.8.

…

Subject to production limitations, Mackay will sell to the Manager sufficient raw sugarto meet the Requirements using its best endeavours to meet the quality parameters ofthe Manager. Mackay will at all time give preference of supply to the Participants…"

Following deregulation, Mackay Sugar and Sugar Australia entered into a "Sale Contract" dated 1 June2007 for a term of three years. Clause 2 of the Sale Contract provided:

"2. QUANTITY

Mackay Sugar will supply sufficient raw sugar to meet the raw sugar melt requirementsfor Sugar Australia's Racecourse Refinery provided that it is no more than MackaySugar's total annual raw sugar production." (emphasis added)

Usually the raw sugar produced by the mill has been substantially in excess of the requirements of therefinery and the mill sells some of its production elsewhere. However, Mackay Sugar's raw sugarproduction during the 2010 crushing season was lower than usual. While Sugar Australia's requirementscould still have been met had Mackay Sugar set aside the quantity Sugar Australia was predicted torequire, earlier in the season, Mackay Sugar sold much of its productions to another buyer. By April/May2011, Mackay Sugar ran out of reserves to supply the requirements of the refinery.

Sugar Australia claimed that the failure to supply its requirements was a breach of contract for which itshould be compensated. The parties submitted the dispute to arbitration.

The Arguments Put To the Arbitrator

Each party accepted there was an obligation upon Mackay Sugar to supply the amount of raw sugarrequired by the refinery, although the obligation was subject to some express proviso or limitationconcerning the extent of the mill's production. The parties, however, differed on the nature of theobligation.

Mackay Sugar contended that after the expiry of the Sale Contract on 30 June 2010, ongoing raw sugarsupply is being made in accordance with its obligations under Schedule 2. It argued its inability to supplythe refinery in 2011 was due to "production limitations" as a result of bad weather and poor harvest. Italso argued that Sugar Australia had failed to mitigate its alleged losses.


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Sugar Australia argued that the relevant contract was the Sale Contract, which had continued in forcefirstly by written agreement for an extension of three months at a meeting on 4 June 2010, and then byconduct.

The applicant claimed that each of these extensions involved the inclusion of cl 2 of the Sale Contractin its entirety.

The award

While the arbitrator accepted that a supply agreement existed between the parties for three monthscommencing 1 July 2010 based on the minutes of the 4 June 2010 meeting, he questioned whetherobjectively the parties intended to import clause 2 of the Sale Contract. The arbitrator focussed on thereference by clause 2 to "total annual production" and had difficulty applying this proviso in the contextof an agreement expressed to operate for three months. The arbitrator therefore decided that theagreement made for the three months to September 2010 had not included clause 2. The arbitrator furtherfound that the parties had made a further agreement with indefinite duration upon the same terms as thesupply from 1 July 2010. Accordingly, clause 2 was not a term of the further agreement which operatedafter September.

The arbitrator held that as the Applicant had not established that clause 2 applied to the agreement whichoperated at the relevant time, no breach of contract was established.

A consequence of the arbitrator's reasoning was, after the expiry of the three year contract in June 2010,there was no contract which contained any term which obliged the Respondent, conditionally orotherwise, to supply any raw sugar to the Applicant. That was not a position asserted by the Respondentin any of its submissions or contentions. It in fact accepted that it was subject to such an obligation(subject to the proviso in Schedule 2 of the JVA). The relationship between the parties as determined bythe arbitrator was markedly different from that contended by the parties.

The Proceedings Before the Court

Two proceedings were brought. One for the setting aside of the award pursuant to s. 42 of the Act. Theother for leave to appeal under s. 38.

The principal argument was that the arbitrator has misconducted the proceedings by failing to provideSugar Australia with an opportunity to address a point which was a critical element in his reasoning, asthis was not a point which had been raised by the parties or which the Applicant should have anticipated.

Sugar Australia also asserted that this point involved an error of law manifest on the face of the award.If the challenge under s. 42 fails, the Court should grant leave to appeal on account of that error of law.

The Court set aside the award and therefore considered there was no need to address the s. 38 application.

The Court's Reasoning

McMurdo J found that a party is entitled to know the case put against it and to be given an opportunityof replying to that case. Similarly, a party is entitled to know of a point which, although not raised by its


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opponent, is considered by the arbitrator to be adverse to its case.

The Court found the main issue is whether a party is deprived unfairly of an opportunity to put its case,by argument and evidence, against the reasoning by which the arbitrator rejects its claim. Incircumstances such as those before the Court, the test is whether the Applicant should reasonably haveanticipated that the arbitrator might determine the dispute by the reasoning he/she ultimately applied.

The issue of whether a term, in the words of clause 2, could sensibly operate within a contract for lessthan a period of a year, was not raised in either party's contentions. While Sugar Australia had indicatedhow the proviso within clause 2 might have operated within a contract existing in April/May 2011 (i.e."Sugar Australia's requirements was no more than MSL's total raw sugar production for the 2010season"), Mackay Sugar did not challenge the operation of the proviso. There was therefore no need forSugar Australia to address the issue further before the arbitrator.

The Court concluded that Sugar Australia should not reasonably have apprehended that the arbitratorwould dismiss its claim by adopting a view of clause 2, which had not been argued for without providingthe parties with an opportunity to make submissions on the point. Consequently, there was "misconduct"within s. 42 by reason of a failure to provide natural justice.

The Court also addressed the effect of an order setting aside an award, specifically whether the arbitratorwould be functus officio. While citing Murphy J's note in Alvaro v Temple3 that opposing views exist inEngland that "an order setting aside the award not only voids the award, but also desseizes the arbitratorof the reference", his Honour preferred McPherson J's view in Re Scibilia and Lejo Holdings Pty Ltd4

that the effect of the order setting aside the award is that the arbitration reverts to the position in whichit stood immediately before the arbitrator published his award, the arbitrator is not functus officio and isentitled to reconsider the award. McMurdo J noted this does not mean that the arbitrator has to revisitfindings or conclusions which are unaffected upon which submissions should have been sought.

Discussion

This case confirms two important issues:

Firstly, failure to inform the parties of the line of the arbitrator's reasoning which the party could nothave reasonably anticipated deprives the parties of the opportunity to present their case. Under the Act,this amounts to procedural misconduct which constitutes grounds for setting aside an arbitral award.This allows courts broad discretionary power to review arbitral awards.

Under the Model Law based Commercial Arbitration Bill 2011 (Qld) (Commercial Arbitration Bill)currently being reviewed by the Queensland parliament, the scope of review by courts in considering asetting aside application is specifically limited to where:

3 [2009] WASC 2054 [1985] 1 Qd R 94 at 102.


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(a) a party to the arbitration agreement was under some incapacity, or the arbitration agreement is notvalid;

(b) a party was not given proper notice of the appointment of an arbitral tribunal or the arbitralproceedings or the party was not able to present its case;

(c) the award deals with a dispute not contemplated by or not falling within the terms of the submissionto arbitration, or contains decisions on matters beyond the scope of the submission to arbitration;

(d) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with theagreement of the parties or the Act; or

(e) the subject matter of the dispute is not capable of settlement by arbitration or the award is in conflictwith the public policy of the State (i.e. Queensland).

The Commercial Arbitration Bill takes a pro-arbitration approach, and the discretionary power of thecourts will be substantially reduced.

In February 2012 the Queensland Legal Affairs, Police, Corrective Services and Emergency ServicesCommittee of the Queensland Parliament recommended the Bill be passed. It will be interesting to seewhether Queensland courts consider any scope exists in the future for them to address circumstancessuch as those that occurred in the case under discussion.

Secondly, this decision confirms that the setting aside of an award in Australia will not render thearbitrator functus officio, and the arbitration reverts to the position in which it stood immediately beforethe arbitrator published his award.

[The views expressed are solely those of the authors.]

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117

Case NoteTraxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2)

Brent Turnball1

Introduction

The issues associated with enforcing international arbitration awards in Australia are highlightedby the recent decision of Foster J in Traxys Europe SA v. Balaji Coke Industry Pvt Ltd (No 2) [2012]FCA 276.

Background

The Applicant, Traxys Europe SA (Traxys) was a company organised in Luxembourg, whichprovided financial, marketing and distribution services to the mining sector. It had no presence or assetsin Australia. In 2009 Traxys entered into a contract with the Respondent, Balaji Coke Industry Pvt Ltd(Balaji) (being a company organised under the laws of India) whereby Balaji agreed to purchase 30,000mt of low ash metallurgical coke from Traxys. Balaji had no presence in Australia beyond holding all ofthe shares in an Australia company called Booyan Coal Pty Ltd (Booyan), such company having anexploration permit to explore for coal in a region near Bundaberg, Queensland.

Balaji failed to complete the contract, leading Traxys to sell the coke to a third party for less thanthe sum which Balaji had agreed to pay.

The contract and the arbitration

The contract between Traxys and Balaji contained a clause in the following terms:

LAWS/ARBITRATION

Any disputes arising out of or in connection with this contract between Balaji and Traxys,including any question regarding its existence, validity or termination, shall be referredto and finally resolved by arbitration under the Rules of the London Court ofInternational Arbitration (LCIA), which Rules are deemed to be incorporated byreference to this clause. The seat, or legal place, of arbitration shall be London. Thelanguage to be used in the arbitration shall be English.

This contract, including the arbitration clause, shall be governed by, interpreted andconstrued in accordance with the substantive laws of England and Wales excluding theUnited Nations Convention on Contracts for the International Sale of Goods of April11, 1980 (CISG).

Traxys commenced arbitration proceedings in London in accordance with the above clause, seekingdamages from Balaji for the short fall in the sale price of the coke, ultimately being awarded the sum ofUS$2,576,250.38 and €260,668.58 plus interest and fees and expenses relating to the arbitration.

1 Brent Turnball, Associate, HWL Ebsworth Lawyers


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Importantly, the rules of the London Court of International Arbitration contained the following passage(Rule 26.9):

All awards shall be final and binding on the parties. By agreeing to arbitration underthese Rules, the parties undertake to carry out any award immediately and without anydelay (subject only to Article 27); and the parties also waive irrevocably their right toany form of appeal, review or recourse to any state court or other judicial authority,insofar as such waiver may be validly made.

Practical issue for Traxys

Despite having the arbitration award in its favour, Traxys had a practical problem in that Balaji had noassets either in England (or in Europe for that matter) against which Traxys could levy execution.

Subsequent conduct

Subsequent to the award being made in the arbitration proceedings:

1. on 26 July 2011, Traxys obtained permission to enforce the award from the High Court of Justicein England and an “anti-suit” injunction preventing Balaji from challenging the arbitration award;

2. on 29 July 2011 (having failed to obtain Orders setting aside the award or alternatively staying itsoperation at first instance in an Indian Court) Balaji appealed the first instance decision and itsought and obtained an ex parte injunction from the High Court of Kolkata (restraining Traxysfrom “... putting the Award into execution”; and

3. on 1 September 2011, permission was given to Traxys by the English Commercial Court to makean application in Australia for freezing orders.

Federal Court proceedings

Traxys made an Application to the Federal Court seeking, inter alia, pursuant to section 8(3) of theInternational Arbitration Act 1974 (Cth) (IAA) an Order that there be Judgment for Traxys against Balajifor US$2,576,250.38 and €260,668.58 plus interest and fees and expenses (being terms identical to thearbitration award).

Balaji contend that the Court ought not make the Order for three reasons:

1. it argued that section 8 of the IAA does not give the Court power to enter Judgment or to make anOrder giving effect to the arbitration award. The Court’s only power being to enforce the award(being a different concept, which neither requires nor permits the entry of Judgment);

2. alternatively, it argued that before Traxys was entitled to enforce the arbitration award, it needed todemonstrate that Balaji had assets within the jurisdiction (Balaji argued that it had sold its interestin Booyan),2 failing which enforcement ought to be denied (as the concept of “enforcement” ofthe award naturally connoted enforcement against assets and if there are no assets then there canbe no “enforcement”); and


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3. in the further alternative, it argued that to enforce the arbitration award would be contrary to publicpolicy. In substance, Balaji’s argument amounted to a contention that, if there were no assets in thejurisdiction, then the Application lacked utility (because even if the arbitration award wasrecognised, there was nothing that it could be enforced against) and the Court ought not grant anOrder which was lacking in utility. Further Balaji argued that these proceedings were in breach ofthe interim injunction granted in India (put in place to ensure that Balaji's appeal from the Orderdenying its original Application in India did not prove to be nugatory) and consequently the Courtought not endorse Traxys conduct by granting relief.

The Judgment

Having set out section 8 of the IAA in detail, Foster J then went on to consider Balaji’s opposition to theOrder sought be Traxys.

In substance the Court (in rejecting Balaji's contentions) held that:

1. section 8 of IAA indeed did grant the Court the power to make the Order sought by Traxys;

2. it was not a prerequisite to the exercise of the Court's power under section 8 of the IAA. In makingthat finding Foster J made the following points:

(a) subject to the due consideration of sections 8(5) and 8(7) of the IAA, Australia Courts areobliged to enforce foreign arbitration awards;

(b) there is nothing in the IAA which prevents an Australian Court from entering Judgment evenif there is evidence that proves that there are no assets in Australia at the time of the entry ofthe Judgment (based on the arbitration award) because:

(i) the process leading up to and granting the Judgment is a distinct process from theJudgment's enforcement;

(ii) the successful party in litigation is entitled to Judgment and it is not a prerequisite tothat right that the party demonstrate that there are assets against which execution maybe levied;

(iii) indeed, a creditor is entitled to levy execution against assets:

(A) which are not in the jurisdiction when the Judgment is entered; and

(B) which do not even exist at that time; and

3. the power to be exercised in section 8(7)(b) of the IAA (that an enforcing Court may refuse to enterJudgment because to enforce the arbitration award would be against public policy):

2 The beneficial ownership of the shares is yet to be determined by the Court


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(a) needed to construed against the pro-enforcement bias of the convention upon which it isbased;3

(b) consequently, the power is not “wide” as suggested by McDougall J in Corvetina TechonologyLtd v. Clough Engineering Ltd [2004] NSWSC 700 [6] – [14], but it should only be invokedwhen the enforcement of the particular arbitration award would “violate the forum state'smost basic notions of morality and justice”;4 and

(c) the effect in this case was that Balaji’s public policy contentions were rejected because:

(i) the Court had already accepted that there was no necessity to demonstrate that Balajihad assets within the jurisdiction and it was not contrary to public policy to grant reliefin the absence of assets against which Traxys could levy execution;

(ii) the proceedings commenced in India were considered invalid and a breach of the Rulesof London Court of International Arbitration (which deemed the arbitration award tobe final) and the anti-suit injunction which Traxys had obtained against Balaji inEngland (Foster J described Balaji’s proceedings as “nothing more than a tactic designedto out manoeuvre Traxys and to avoid its obligations under the Award…”);

(iii) Balaji had been able to convince the Indian High Court to grant an ex parte injunction;and ultimately

(iv) it was held that they did not engage the core of morals and justice in Australia so as toenliven the discretion to refuse to enforce the arbitration award.

Conclusion

Two things ought to be apparent as a result of this case.

The first is that Australian Courts continue to follow the American example by allowing the enforcementof international arbitration awards other than in circumstances where enforcement offends the veryprinciples that underline the “most basic notions of morality and justice” of Australia’s court system.

Second, it suggests that had Traxys appropriately drawn the arbitration clause of the contract with Balajito ensure that the seat of the arbitration was consistent with where Balaji had assets against whichexecution could be levied, it could have avoided the need for the Federal Court proceedings whichultimately ensued (noting that at the date of this article, the second phase of the case had yet to bedetermined and consequently it remains to be seen whether the shares in Booyan will be available tosatisfy the arbitration award and the Federal Court Order).

3 Being the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the UnitedNations Conference on International Commercial Arbitration at its twenty-fourth meeting

4 Taken from Parsons & Whittemore Overseas Co, Inc v. Société Générale De L'Industrie Du Papier (RAKTA) [1974]USCA2 836 (US Second Circuit Court of Appeals)

Contributions to the Journal are welcome, and should be sent to:

Russell Thirgood General EditorThe Arbitrator & MediatorNational OfficePO Box 13064Law CourtsVic 8010 [email protected]

When preparing submissions, the Journal Committee recommends the following for the Author(s)’ assistance:

Manuscript

1 Author(s) are required to denote their details including postnominals, position, organisation andother relevant information (50 words or less) in the first footnote of the manuscript.

2 In all submissions, the first footnote should denote the Author(s)’ name, position and other rel-evant information.

3 The manuscript should be provided electronically via email or disk in word format.

4 Authors should provide an abstract of the manuscript (60 100 words) to be included at the be-ginning of the published submission.

5 The manuscript should be approximately 3000 5000 words in length for articles, 1000 2000words in length for case notes and 750 1,000 words in length for book reviews. Case notes shouldprovide a brief outline of the facts and judgment together with evaluation and analysis of theimportance of the decision for alternative dispute resolution.

6 The manuscript should be in its final form, as corrections on proofs will generally be limited toliteral errors or changes necessitated by legislative developments. However, manuscripts mayon occasion be edited to correct spelling and syntax errors, clarify meaning, or enhance expres-sion. Minor amendments may occur without the Editor seeking the Author's approval. The Authorwill normally be consulted should major changes be considered advisable.

7 In the preparation of manuscripts, authors are to refer to the style points below. More detailedinformation is available from the Australian Guide to Legal Citation (AGLC), published by Mel-bourne University Law Review Association. The AGLC can be viewed electronically at<http://mulr.law.unimelb.edu.au/aglcdl.asp>. The recommended dictionary is the Macquarie Dic-tionary.

8 Authors are totally responsible for the accuracy of case names, citations and other references,spelling judges' names, accuracy of quotations, etc.

Notes for Authors

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9 It is assumed that an article submitted to The Arbitrator & Mediator has not been submitted toanother publisher or journal or that the material published in the journal has not been alreadypublished elsewhere. (It is the Author's responsibility to inform the Editor if the article has beensubmitted to another publisher or journal.) It is the Institute's Journal Committee policy to publishmaterial that has already been published only with the agreement and/or acknowledgement ofthe previous publisher.

10 Articles published in The Arbitrator & Mediator are critically appraised or reviewed by externalacademic or professional peers of the Author(s).

Style Points

General:

(i) Levels of headings should be clearly indicated (no more than five levels).

(ii) Authorised reports should be used in citations.

(iii) Gender-neutral language should be used.

(iv) Quotations use single quotation marks. Double quotation marks are reserved for use within aquotation. Use a colon to introduce block quotations.

(v) Ensure that hyphens and dashes are differentiated.

(vi) Use a colon to introduce lists set off from the text, and to introduce run-on lists except thosethat begin with for example, that is, including, such as and so on, which do not require punctu-ation.

(vii) Abbreviations (except those that begin with an initial capital, e.g. ‘Mon.’) and contractions donot take a full stop.

Citations:

In all submissions, case, legislation, book, journal and internet citations should appear not in the textbut as footnotes, numbered consecutively throughout. All citations must conform to the AGLC (see 7above). The following style is preferred:

Cases:

Case citation follows case name. Case names should generally be omitted in accompanying foot-note when referred to in the text. Abbreviated case names may be used in references subsequent tothe initial citation. Abbreviated case names should be italicised and placed in single quotationmarks in parenthesis following initial citation, e.g. Imperial Leatherware Co Pty Ltd v Macri &Anor (Imperial Leatherware).

Legislation:

International Arbitration Act 1974 (Cth). Abbreviations should be used in pinpoint references todelegated legislation, excepting at the start of a sentence.

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Books:

David St John Sutton and Judith Gill, Russell on Arbitration (22nd ed, London: Sweet & Maxwell,2003) 3.

MJ Mustill and SC Boyd, The Law and Practice of Commercial Arbitration (2nd ed, London: But-terworths, 1989) 349.

Journal Articles:

Scott Ellis, ‘Arbitrators and Self Represented Parties’ (2004) 23 (3) The Arbitrator & Mediator 20,20–25.

Internet references:

References should include (where available): author, document title, year, website name, pinpointreference, URL and date of retrieval. The URL should be enclosed within angle brackets. The fol-lowing style is preferred:

Craig Pudig, Domestic Lessons from International Arbitration (2004) The Institute of Arbitrators& Mediators Australia [29] <www.iama.org.au> at 22 February 2005.

In footnotes, ‘op cit’, ‘loc cit’, ‘supra’ and ‘infra’ should not be used. The abbreviated form of thetitle and surname of author(s) should appear in subsequent references. Ibid should not be used torefer to a source of legislation, but the legislation should be cited in full in all subsequent references.Cases and treaties should be cited in full in all subsequent references. Subsequent references to asource other than legislation, cases and treaties should use ‘above n’. Ibid should be used to referto source in the immediately preceding footnote (whether ‘above n’ or full citation). Pinpoint ref-erences should only appear if a different page number is referred to. For example:1. David St John Sutton and Judith Gill, Russell on Arbitration (22nd ed, London: Sweet &

Maxwell, 2003) 3.2. Ibid. 57.3. Scott Ellis, ‘Arbitrators and Self Represented Parties’ (2004) 23(3) The Arbitrator & Mediator

20, 20–25.4. Sutton and Gill, above n 1, 33.

Deadline for Submissions

The Journal is published two times a year in April and October. All submissions are due eight weeks be-fore publication (28 February and 31 August). Late submissions may be considered for future editions.The editors cannot guarantee that all accepted submissions will be published in the next edition.

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When preparing your files

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2 When sending a job, include only the files that are going to be imaged. Additional files can createconfusion and delay the processing of that order. Be sure to label all the files appropriately so theyare easily identifiable.

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NOTES

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