Arbitration award upheld – no real unfairness or practical injustice

The Queensland Court of Appeal upholds an arbitrator’s award despite procedural missteps – no “real unfairness” or “practical injustice”.

Mango Boulevard Pty Ltd v Mio Art Pty Ltd & Anor [2018] QCA 39

In Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39, (Mango v Mio Art), the appellant sought to overturn a trial judge’s decision to dismiss an application to set aside an arbitrator’s award. The appellant alleged that the arbitrator breached the rules of natural justice, and that the decision making process was contrary to the public policy of Queensland. However, despite the fact that the arbitrator adopted a share-valuation methodology not advanced by either party, and which was not put to the appellant’s expert witnesses, the Queensland Court of Appeal nevertheless dismissed the appeal and upheld the arbitral award.

The Facts

The appellant, Mango Boulevard Pty Ltd (Mango), and the respondents, Mio Art Pty Ltd (and another) (Mio Art), were in dispute in connection with a joint venture for the development of land. The joint venture comprised a number of agreements including a share sale agreement (SSA). Under the SSA, Mio Art agreed to sell a parcel of land to the joint venture vehicle (“Kinsella”) for $22M, and Mio Art agreed to sell half its shares in Kinsella to Mango. The SSA contained a formula and process by which the price for the shares was to be determined. If agreement could not be reached on the price, then that dispute was to be (and was in fact) referred to arbitration.

In determining the price for the shares, the arbitrator used his own methodology of valuation, which was not in accordance with the parties’ submissions, or with the evidence given by the parties’ witnesses.

Application to set aside the award

At first instance, Mango sought to set aside the award relying on sections 34(2)(a)(ii) and 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld) (Act), (which correspond to Articles 34(2)(a)(ii) and 34(2)(b)(ii) of the UNCITRAL Model Law), and which materially provide:

“(2) An arbitral award may be set aside by the Court only if –

(a) the party making the application furnishes proof that –

…

(ii) the party making the application … was otherwise unable to present the party’s case; or

…

(b) the Court finds that –

…

(ii) the award is in conflict with the public policy of this State.”

In the Supreme Court of Queensland, Jackson J at first instance dismissed the application to set aside.

Appeal to the Court of Appeal

In the Court of Appeal, the majority (McMurdo JA, Fraser JA agreeing) accepted that it was the arbitrator, and not the parties, who put forward the approach used to value the shares; that the arbitrator’s approach only came to light after the evidence was closed; and that the arbitrator’s reasoning was not put to any of the relevant expert witnesses.

However, McMurdo JA carefully considered and relied on what the Full Court of the Federal Court said in TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361 (TCL), (a case under the International Arbitration Act 1974 (Cth)). In TCL, the Full Court said that an award should not be set aside under article 34 of the Model Law (which is fundamentally the same as s 34 of the Act) unless there was:

“…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” (at [55] of TCL).

Accordingly, and using “real unfairness” and “real practical injustice” as the touchstone for determining whether the award should be set aside, McMurdo JA said that the arbitrator clearly raised the possibility of his reasoning during final addresses and that “it could not be said that ultimately, the appellant was denied an opportunity to argue a case in response to it”: [106]. Justice McMurdo said that it would have been open to the appellant to seek to recall its witnesses had it wished to do so, but it chose not to.  Justice McMurdo stated that the relevant issue was in fact addressed by Mango (that is, it was given an opportunity to be heard) “by submissions which were made some weeks after the subject was first raised by the arbitrator.”

Justice Morrison took a similar view to the majority, and agreed that the appeal should be dismissed (but delivered separate reasons). His Honour said that “the evidentiary foundation” for the proposition ultimately relied on by the arbitrator, and his “process of reasoning”, were raised with (and understood by) Senior Counsel for Mango, and Mango chose to respond by way of submissions instead of seeking to re-open its case to adduce further evidence on the point.

In relation to the fact that the relevant valuation methodology relied on by the arbitrator was not pleaded, Morrison JA said this point could be put to one side as the parties “accepted that the point was alive” and because Mango did not object to the point being agitated.  Justice Morrison said that even if one accepted that the arbitrator did not squarely give Mango’s expert a chance to answer the proposition relied on by the arbitrator, no injustice was suffered by Mango (for the reasons above) and because the issue was sufficiently raised with the relevant expert, and Senior Counsel for Mango was fully alive to the issues and provided submissions in response.  Justice Morrison stated:

“Contrary to Mango Boulevard’s contentions, it is not possible to conclude that there has been real unfairness or real practical prejudice in this case. Mango Boulevard understood the point and chose to respond to it in a particular way, which, as it happened, did not include recalling [the expert] Mr Cox. That was a forensic choice made by Mango Boulevard” (at [82]).

Essentially for these reasons, the Court found that the appellant was able to present its case and there was no real unfairness or real practical injustice in how the arbitration was conducted, nor was there any breach of public policy.

Accordingly, the appeal was dismissed.

Comment

The decision of the Queensland Court of Appeal in this case is consistent with recent cases in Australia in which the courts have taken a narrow (or restrictive) approach to applications to set aside under s 34 of the Act (and Article 34 of the Model Law).

By upholding arbitral awards, even in circumstances where arbitrators could be said to have made technical missteps along the way, the courts have furthered the objects of the commercial arbitration acts, (which operate in each of the States and Territories of Australia), which include the paramount object “to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.”

In this case, it seems clear that the arbitrator decided to come to his own view of the appropriate approach to valuing the shares, which was not the approach of any of the experts. This is not the approach taken by judges in courts in Australia.  In Masters Home Improvement Australia Pty Ltd v North East Solutions Pty Ltd [2017] VSCA 88, the Victorian Court of Appeal (Santamaria, Ferguson and Kaye JJA) said at [420], omitting footnotes:

“Where expert evidence is concerned, the Court’s role is to evaluate it critically. Where the evidence is cogent, it should not be ignored. In this regard, it is not part of the Court’s role to bring a third set of opinions into the arena, nor to piece together its own valuation.”

In Mango v Mio Art, even though the approach taken by the arbitrator was outside the norms expected in a superior court in Australia, the award was nevertheless upheld.  Of paramount importance was the fact that Mango was accorded procedural fairness with respect to the arbitrator’s methodology.  It was given the opportunity to make submissions about the arbitrator’s proposed methodology and so it was given the opportunity to be heard. There was no “real unfairness” or “real practical injustice” in the way the arbitration was decided and so the award was upheld.

(Thank you to Albert Monichino QC for his comments and contribution to this article.)