Rules of natural justice do not necessarily encompass the requirement of probative evidence for the abritrator’s factual findings

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In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83, the Full Court of the Federal Court of Australia unanimously held that an international commercial arbitration award will not be set aside or denied recognition or enforcement for breach of the rules of natural justice unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness.

BACKGROUND

The dispute between Castel Electronics Pty Ltd (based in Australia) and TCL Air Conditioner (Zhongshan) Co Ltd (based in the People’s Republic of China) has a long and protracted history. Following a hearing in 2010, the arbitral tribunal delivered an award in Castel’s favour. TCL sought to set aside the award. Castel sought to enforce the award. TCL resisted enforcement of the award.

In attempting to set aside and resist enforcement of the award, TCL argued that there has been a failure by the arbitrators to accord it procedural fairness such that there had been a breach of the rules of natural justice in connection with the making of the award, and so, it was asserted, the award was in conflict with, or contrary to, the public policy of Australia (see Articles 34 and 36 of the UNCITRAL Model Law and sections 8(7), 8(7A), 16 and 19 of the International Arbitration Act 1974 (Cth)).

At first instance in 2012, the Federal Court rejected TCL’s arguments and found in Castel’s favour. That judgment enunciated some guiding principles in relation to “public policy” in the context of international commercial arbitration and is the subject of a previous Corrs in Brief. TCL appealed from this judgment but its appeal was dismissed by the Full Court of the Federal Court. The appeal judgment is the subject of this Corrs in Brief.

In 2012, TCL also applied in the High Court of Australia’s original jurisdiction for the issue of constitutional writs of prohibition, directed to the judges of the Federal Court, and of certiorari, to restrain them from enforcing the award and/or to quash the first instance Federal Court decisions. In a landmark decision in 2013, the High Court dismissed TCL’s application. Discussion of that decision is the subject of another previous Corrs in Brief.

REAL UNFAIRNESS OR REAL PRACTICAL INJUSTICE

In a unanimous decision of the Full Court of the Federal Court of Australia, it was held that an international commercial arbitration award will not be set aside or denied recognition or enforcement under Articles 34 and 36 of the UNCITRAL Model Law for breach of the rules of natural justice unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness.

TCL’s complaint was essentially that the arbitral tribunal made three findings in the absence of probative evidence, the findings being those upon which TCL was said to have been denied an opportunity to present evidence and argument. The Full Federal Court’s strong view was that, if the rules of natural justice encompass requirements such as the requirement of probative evidence for the findings of facts or the need for logical reasoning to factual conclusions, there is a grave danger that the international commercial arbitral system will be undermined by judicial review in which the factual findings of a tribunal are re-agitated and gone over in the name of natural justice, in circumstances where the hearing or reference has been conducted regularly and fairly.

The Court accepted, without the slightest hesitation, that the making of a factual finding by a tribunal without probative evidence may reveal a breach of the rules of natural justice in the context of an international commercial arbitration. This, it said, would be so when the fact was critical, was never the subject of attention by the parties to the dispute, and where the making of the finding occurred without the parties having an opportunity to deal with it. That is unfairness. It does not follow, however, that any wrong factual conclusion that may be seen to lack probative evidence (and so amount to legal error) should necessarily, and without more, be characterised as a breach of the rules of natural justice in this context.

The Court emphasised that the essence of natural justice is fairness. Unless there is unfairness or true practical injustice, there can be no breach of any rule of natural justice. The required content of fairness in any particular case will depend on context. It is not an abstract concept, but essentially practical. Fairness, the Court said, is normative, evaluative, context-specific and relative.

The Court remarked that in most, if not all, cases a party who says that it has suffered such unfairness or practical injustice should be able to demonstrate that without the kind of detailed re-examination of the facts that occurred in this case (and which TCL contended was the proper approach). Unfairness or practical injustice in the conduct of international commercial arbitration should, the Court said, be able to be expressed shortly and, likewise, demonstrated tolerably shortly. It will not be demonstrated as a result of a detailed factual analysis of evidence regularly and fairly brought forward involving asserted conclusions of facts different to those reached by the arbitrator. Suffice to say, real unfairness or real practical injustice was not shown to be the case here.

BALANCE BETWEEN SWIFT ENFORCEMENT AND LEGITIMATE TESTING OF GROUNDS FOR SETTING ASIDE OR NON-ENFORCEMENT

The Full Federal Court echoed the views of the High Court in the 2013 case involving the same parties that the context of international commercial arbitration is the exercise of private power though an arrangement and a tribunal to which the parties have consented under a regime wherein errors of fact or law are not legitimate bases for curial intervention.

The Court was conscious that interference by national courts, beyond the matters identified in the UNCITRAL Model Law as grounds for setting aside or non-enforcement would undermine the international arbitral system. The appropriate balance between the swift and judicial enforcement and recognition of contracts and awards on the one hand, and legitimate testing of grounds under Articles 34 and 36 of the Model Law on the other hand, is critical to maintain. An important part of that balance, the Court said, is the protection by the courts of the fundamental norms of fairness and equality embodied in the rules of natural justice within the concept of public policy.

This and the other decisions discussed in our recently published chapter in The International Arbitration Review (2014 edition) demonstrate the commitment of Australian courts to uphold the integrity of the arbitral process and the finality of arbitral awards by increasing certainty in the enforcement process of those awards and strengthening the grounds on which parties may set them aside or resist their enforcement.


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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