‘Layers of lipstick’ not enough: Court refuses to set aside arbitral award following alleged procedural unfairness

In Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd [2021] WASC 137, Kenneth Martin J dismissed an application to set aside an arbitral award based on an alleged denial of procedural fairness. In doing so, His Honour delivered an emphatic message about the Court’s tolerance of attempts to circumvent the finality of arbitral awards.  

Background

In 2020, a private arbitration was conducted between the plaintiff, Venetian Nominees Pty Ltd (Venetian), and the defendant, Weatherford Australia Pty Ltd (Weatherford).

The arbitration concerned a monetary dispute around the proper apportionment of costs under a lease. It centred on the proper construction of the apportionment clause in the lease.  

The arbitration was conducted remotely by telephone conferencing due to COVID-19, over two days. The parties did not arrange for a transcript of the hearing to be produced. At the conclusion of the hearing, the parties were offered the opportunity to submit further written submissions and extra materials. 

The dispute turned on the meaning of the phrase “total lettable area of the premises covered by the relevant assessment or charge”.  

Weatherford’s construction of the word ‘lettable’ required the word to include undeveloped land.  Venetian’s construction required some embellishment of the text to clarify that it meant land that was both developed and available for letting.  

The arbitrator considered it unlikely that a reasonable business person would have understood clause 4.6 of the lease to require the lessee to bear a significant portion of the outgoings cost in respect of the whole of lot 9009 that remained undeveloped or for a common area that provided no utility to the lessee’s premises. 

Ultimately, the arbitrator determined that the relevant lettable area excluded any area in respect of which there was a regulatory prohibition preventing it from being lettable and any common areas designated by Venetian to Weatherford for an area that served or was for use of the relevant Premises. As a result, the arbitrator found that Weatherford had overpaid its share of the outgoings, and the award directed Venetian to repay Weatherford. 

Venetian commenced proceedings in the Supreme Court claiming that the award should be set aside under sub-sections 34(2)(a)(ii) and (iv) of the Commercial Arbitration Act 2012 (WA). The Judge summarised the basis of the application as being essentially that Venetian was not able to fairly put forward its case.  

Central issue

The central issue in this case was whether Venetian was given a fair opportunity to present its case.  

This is a way to challenge arbitral awards being used more and more in other jurisdictions, including Hong Kong and Singapore. It draws on the protection contained in Article V of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), which permits member states to refuse to recognise or enforce an arbitral award if (among other reasons) the party against whom the award was made was otherwise unable to present its case. This is in turn reflected in the UNCITRAL Model Law on International Commercial Arbitration, and many arbitration statutes (including the Commercial Arbitration Act 2012 (WA)).

The alleged denial of procedural fairness related to the arbitrator’s finding that the relevant term excluded the regulatory prohibition areas and the common areas. Venetian said it was not afforded the opportunity to properly present its case on those points.

Decision

Justice Kenneth Martin dismissed the application, labelling it “truly breathtaking in its audacity”. In quite a scathing judgment, His Honour said:  

“Indeed, despite the many layers of lipstick, the essential nature of Venetian's grievance is ultimately exposed to being that its advocated rival interpretation of the clause's true meaning was rejected by the arbitrator. Such a grievance is not a true process grievance. It is a poorly disguised attempted appeal raised against a decision reached against it. Save to say, losing is not a violation of procedural fairness principles.”

In coming to this decision, Martin J referred to his earlier judgment in Spaeski v Mladenovski [2019] WASC 65 and the observations made by the Chief Justice of Singapore, Menon CJ in AKN v ALC [2015] SGCA 18, where Menon CJ stated: “... courts must resist the temptation to engage in what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during an arbitration.”  

Bearing this legal analysis in mind, Martin J carefully reviewed the arguments put forward and found that Venetian was not denied a reasonable opportunity to present its case. His Honour drew the distinction between “a process grievance” and what was “just a badly run case”, and found the hearing was “perfectly fair”.

In coming to that decision, His Honour noted that it was “not at all satisfactory” that the parties did not have a word-for-word transcript of the arbitration hearing. His Honour said it made the task of reliably evaluating what happened at the hearing “simply hopeless”.   

He also gave significant weight to the opportunity afforded to the parties at the end of the hearing to provide the arbitrator with further submissions or materials, and Venetian not taking that opportunity to provide further materials.   

Finally, His Honour noted that applications in these circumstances “should no longer be entertained”. To discourage what he described as ‘the backdoor strategy’, Kenneth Martin J said in future such applications should be met with punitive costs sanctions.  

In that context, His Honour reserved the question of costs, and said he would hear the parties separately on that point if necessary.  

Key takeaways 

In Western Australia, courts clearly discourage attempts to circumvent the finality of arbitral awards by using punitive costs orders. 

This decision also reinforces the common practice to take transcripts of all arbitral proceedings. They are almost essential to any subsequent challenge to what occurs at the arbitration.