Only the "most meritorious appeals" of domestic arbitral awards shall be granted leave

NSW Supreme Court confirms the requirements for leave to appeal under s34A of the Commercial Arbitration Act

What you need to know

• The Commercial Arbitration Act 2010 (NSW) (Act) allows parties to a domestic arbitration agreement to agree for questions of law arising out of their arbitral award to be reviewed by the Court.
• However, even if the parties have agreed to have appeals, the Court will only grant leave to do so if certain requirements are met.
• The requirements for leave to appeal present substantial obstacles to all but the most meritorious appeals.

What you need to do

• Be aware that even if you agree to appeals for your domestic arbitral award, you may be unlikely to obtain leave to appeal.
• Consider other dispute resolution options if you do not want the certainty of a binding determination without appeals.

Appeals from arbitral awards

An often-cited benefit of arbitration is that arbitral awards are final and binding. This gives the parties certainty because there are no appeals processes that follow, such as those that may apply in litigation.

In Australian domestic arbitration, however, the legislation permits parties to agree to 'opt-in' to appeals of arbitral awards on questions of law.

This is not, however, an unfettered right. Even if the parties 'opt-in', an appeal of an arbitral award can only proceed with leave of the Court.

The circumstances in which a Court will grant leave to appeal from a domestic arbitration award are very narrow. As observed by the authors of Russell on Arbitration (24th ed, 2015, Thomson Reuters), “few appeals … actually get over the leave requirement, which has been designed to catch all but the most meritorious appeals."

In ViaSat Inc v Hansen Yuncken Pty Ltd [2024] NSWSC 1581 (ViaSat), the NSW Supreme Court confirmed that the bar for leave to appeal an arbitral award is a high one and requires separate satisfaction of each of the requirements set out in section 34(3) of the Act.

Section 34A(3) provides that the Court must not grant leave unless it is satisfied that each of the four requirements set out in that section are satisfied.

First requirement: substantially affecting rights

The first hurdle to obtaining leave to appeal is that "the determination of the question will substantially affect the rights of one or more of the parties".

It is not enough for a party to simply rely on the fact that the determination affects an aspect of the dispute in the arbitration. Further, it is not enough that the determination could affect a party's rights – the Court must be satisfied that it will affect the party's rights.

In ViaSat, Justice Rees was satisfied that the question for the appeal would be determinative of the head contractor's entitlement to $1.62m in liquidated damages, which "is a lot of money". For that reason, the first limb was satisfied.

Second requirement: question the arbitrator was asked to determine

The second hurdle is that the question for appeal must be one the arbitrator was asked to determine.

In ViaSat, the parties agreed that this limb was satisfied, so it was not considered by the Court.

Third requirement: general public importance and open to serious doubt

The third hurdle can be satisfied in one of two ways:

• first, if the decision "is obviously wrong"; or
• second, if "the question is one of general public importance and the decision of the tribunal is at least open to serious doubt".

This means that the Act prescribes a lower bar for the third requirement if the question is of general public importance. It was this lower bar that the head contractor sought to pass in ViaSat.

In this context, general public importance is directed to the public interest in clarifying questions of law that have general application. This is unlikely to be satisfied where the issue is commercially unique to the arbitrating parties.

The public importance in ViaSat was mainly said to arise from the fact that the relevant provisions of the subcontract (being from a standard form Department of Defence contract) were frequently used in procuring works and supplies for the Department of Defence.

While it was true that the subcontract was based upon a Department of Defence template, it was not a typical subcontract for such projects.

In fact, Justice Rees concluded that in addition to being amended from the standard form, "a contract generally used for the acquisition of military vehicles and weapons was used for the construction of a building". As the subcontract was "unusual and unique" to the project and "will not give guidance on the construction of defence contracts more broadly", Justice Rees was not satisfied that the proper construction of the particular subcontract was a matter of "public importance."

Justice Rees also concluded that the determination of the arbitrator was not "at least open to serious doubt" in any event.

Accordingly, the third requirement for leave to appeal was not satisfied.

Fourth requirement: just and proper in all the circumstances

The fourth and final hurdle is that it must be "despite the agreement of the parties to resolve the matter by arbitration, just and proper in all the circumstances for the Court to determine the question”.

Justice Rees did not consider the head contractor was required to establish some further reason for leave to be granted beyond those identified by the first three requirements. Rather, the fourth requirement provides a "sweep-up" discretion to the Court to refuse leave even if the other requirements have been met. This may be by reference to other features of the dispute, the arbitration or the application.

Ultimately, as the head contractor failed to satisfy the third requirement, it was unnecessary for Justice Rees to consider this fourth requirement.

Comments

The ability to 'opt-in' to appeals of domestic arbitration awards is a notable point of distinction from the International Arbitration Act 1974 (Cth) and the Model Law.

ViaSat makes clear, however, that opting-in does not involve parties making a wholesale departure from the agreement to have their dispute finally determined by an arbitrator, even if the arbitrator makes a mistake of law.

Instead, opting-in provides a limited opportunity to challenge arbitral awards where the Court is satisfied that material justice will not be done.

That there is limited scope for appeal will be seen by many as a substantial benefit of arbitration over litigation given the certainty it provides to disputing parties. However, if it is important to a party for it to keep appeals available, it should bear in mind that 'opting-in' to section 34A of the Act is not a panacea.

The decision is ViaSat is also notable because Justice Rees cited a number of decisions of the High Court of England and Wales in her reasons and referred to the similar process for appeals of arbitral awards under the Arbitration Act 1996 (UK). Each of the Arbitration Act 1996 (UK), the Arbitration Act 2001 (Singapore) and the Arbitration Ordinance (Hong Kong) provide for appeals of arbitral awards either if the parties agree or if the court grants leave. Otherwise, the legislation in these other jurisdictions include the same requirements for leave to appeal as found in section 34A(3) of the Act. The decision in ViaSat demonstrates that, given this commonality and notwithstanding the legislative differences, the Australian Courts are prepared to rely on relevant international decisions when deciding cases that concern arbitration law and practice.