Victorian court finds function takes precedence over form in arbitration agreements

Out-Law News | 14 Jul 2021 | 1:18 pm | 3 min. read

The Victorian Court of Appeal in Melbourne has dismissed an attempt to overturn an arbitration award on the grounds that the arbitration agreement failed to comply with the state’s Commercial Arbitration Act 2011.

The court held (28 page / 257KB PDF) that the agreement in question did comply with the act and was sufficient in determining what types of disputes were captured under the agreement.

The case concerned an arbitration agreement that was made in respect of a series of loans made by Corey Tayar to Pinchus Feldman and his son Yosef, who ran the Yeshivah Centre in Sydney. Tayar, an employee of the centre, loaned various amounts of money to the Feldmans between 2008 and 2013 for the purpose of running the centre. Tayar claimed these loans, informed by Jewish legal principles, had not been repaid.

In 2013 the Feldmans and Tayar entered into an arbitration agreement to resolve the dispute between them. The arbitration began on the day the agreement was executed, and the arbitrators and the parties seemed to agree that Tayar would make his claims orally and the Feldmans would then respond orally. This was contrary to the arbitration agreement in which the parties envisaged identifying the precise disputes in their written pleadings.

The tribunal found largely in Tayar’s favour and made an award of A$1.85 million.

In 2019 Tayar went to court in Melbourne to enforce the award where the judge made an order relating to one of his claims, enforcing payment of A$1.5m under the Commercial Arbitration Act. The Feldmans appealed the decision, arguing the arbitration agreement failed to comply with the act, as it was not in writing and there were no records of the dispute submitted to arbitration.

They also argued that the arbitrators had failed to provide adequate reasons for the award in respect of the quantum for the claim.

The Court of Appeal dismissed the Feldmans’ applications on both grounds. It said that particular disputes did not need to be identified within the arbitration agreement itself for the arbitration agreement to be valid and binding.

The court decided there was a sufficient process within the agreement to determine with certainty the types of disputes that could be submitted to arbitration.

Although it described the reasons as “not easy to understand”, the Court of Appeal also found that the reasons provided by the arbitral panel as to the amounts owed were sufficient. 

The court said reasons in arbitral awards should not be held to a judicial standard, and the standard required would depend on the evidence, complexity, nature of the issue and finding. The reasoning should also explain why the arbitrators reached that decision.

Arbitration expert Gemma Thomas of Pinsent Masons, the law firm behind Out-Law, said “The case provides a further example of the Australian courts’ willingness to uphold arbitration agreements and enforce arbitral awards, even in circumstances where the court appears to have had difficulty interpreting the three-page reasons, which had been translated into English. This case joins a line of Australian cases confirming that reasons for an award in an arbitration need not be of the same standard as court judgments. It was sufficient in this case that the reasons set out the parties’ arguments, the principles applied and the tribunal’s conclusions,” Thomas said.

“As this case demonstrates, the courts will uphold arbitral agreements provided the parties’ intention to have their disputes determined through arbitration is clear and is in writing.” Thomas said.

Thomas said it was common for arbitration agreements not to identify the disputes to be referred to arbitration because at the time they are agreed, no disputes have arisen yet. The case confirmed that identification of the matters in dispute is not a requirement of a valid arbitration agreement.

“The case also stands as a further warning to parties that certain objections – including whether disputes have been properly included in the arbitration – must be raised promptly, at the time they arise. A party that sits on their hands and later seeks to raise such an objection, particularly after they lose, will face an uphill battle,” Thomas said.

Thomas said it was important to note that there was no allegation that procedural fairness had been denied. She said the case’s outcome may have been different if, for example, the Feldmans had not been given the opportunity to provide evidence or make submissions on the disputes the subject of the arbitral award.