International Commercial Arbitration: Arbitrators’ discretion or breach of natural justice principle?

How much discretion do arbitrators actually have in international commercial arbitrations? The answer to this question depends on a number of factors depending on where the arbitration is being conducted and under which rules. However, the “natural justice” principle is applicable in most arbitrations and requires parties to be afforded procedural fairness by imposing some limitations on arbitrators’ discretionary powers. The natural justice principle is codified in the UNCITRAL Model Law on International Commercial Arbitration (Model Law), which is a widely used instrument for the governance of international arbitrations. 

Some parties have sought to rely upon the natural justice principle in article 18 of the Model Law to seek to set aside arbitral awards. In the 2021 case of CBS v CBP [2021] SGCA 4 (CBS Case), the Singapore Court of Appeal found that an arbitrator’s decision to deny a party the opportunity to give oral evidence was a breach of the natural justice principle and upheld the earlier decision of the Singapore High Court to set aside the arbitral award.

This issue raises some questions about the integrity of arbitral awards and what steps are available to parties to ensure that favourable awards are not set aside. This bulletin explains the natural justice principle and provides some guidance on these questions.

In doing so we will also consider the extent of an arbitrator’s discretion and powers. It is important to do so because the misuse or over-exercise of an arbitrator’s discretion or power as a concept overlaps with procedural fairness and other administrative law principles and may give rise to grounds for setting aside any awards in the arbitration. The first step in understanding arbitrators’ discretion and powers is to be familiar with the principles of natural justice which underpin them.

Do arbitrators have any discretion in proceedings?

Arbitrators enjoy some degree of procedural discretion in the context of their impartial and independent role as decision makers in arbitrations. 

At least some discretion is necessary for arbitrators, given the “ad hoc” and consensual nature of arbitration proceedings. For example, arbitral discretion is required in circumstances of procedural deadlock when parties cannot agree on how and when certain steps, such as service of evidence, need to be undertaken in proceedings.

The Model Law grants arbitrators discretion with respect to the following matters:

• Determinations regarding interim measures (art. 17A(1)(b));

• Competence of the arbitral tribunal to rule on its own jurisdiction (art. 26); and

• Determination of rules of procedure (art. 35).

Similarly, the 2021 Arbitration Rules for the Australian Centre for International Commercial Arbitration (ACICA Rules) provide that:

“25.1    …the Arbitral Tribunal may conduct the arbitration in such manner as it considers appropriate…

25.2     …the Arbitral Tribunal shall adopt suitable procedures for the conduct of the arbitration in order to avoid unnecessary delay or expense…”

However, as we discuss below, arbitrators’ discretionary powers must be balanced with the requirements of the natural justice principle at all times during proceedings.

What is natural justice?

Essentially, the principles of natural justice say that parties to legal proceedings, including arbitrations, must be treated with procedural fairness and given equal opportunities to present their best case. 

The natural justice principle is captured in article 18 of the Model Law, which states:

“Article 18. Equal treatment of parties

The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”

Further, articles 25.1 and 25.2 of the ACICA Rules (which grant arbitrators discretionary powers as outlined above) make it expressly clear that arbitrators must ensure that “the parties are treated equally and that each party is given a reasonable opportunity of presenting its case”. 

Hence, it is unequivocal that the extent of an arbitrator’s discretion does not outweigh the requirements of procedural fairness and natural justice. But how does this work in practice?

In the CBS Case, the Singapore Court of Appeal found that the arbitrator’s robust use of discretion in denying one party from giving oral evidence was a breach of the principles of natural justice. The relevant rules (SCMA Rules) governing that particular arbitration did provide the arbitrator with a degree of discretion, including “the widest discretion allowed” by Singapore arbitration laws “to ensure the just, expeditious, economical and final determination of the dispute”. 

However, it was found that such discretion, albeit broad in its express terms, was not intended to be so broad as to allow the arbitrator to deny a party a right it would otherwise have had, such as giving oral evidence. It was on this basis that the arbitrator’s award was set aside by the Singapore High Court – a decision which was affirmed by the Singapore Court of Appeal.

The wording and extent of the natural justice principle will vary depending on the seat of the arbitration and which rules are agreed by the parties to govern the proceedings.

So, whilst arbitrators enjoy some degree of discretion as discussed above, any discretion does not prevail over arbitrators’ duties to ensure the principles of natural justice are adhered to in arbitral proceedings.

What if the arbitrator breaches the natural justice principle? 

It is a paramount duty for arbitrators to ensure parties are given every benefit required by the natural justice principle during arbitration proceedings. This means:

• Ensuring parties are allowed equal opportunities to present their case through submissions and evidence;

• Not preventing parties from providing evidence, either written or orally;

• Giving parties every opportunity to present their case and be heard on procedural matters.

The risk of arbitrators failing to strike the requisite balance between discretionary powers and natural justice is that any awards given by the arbitrator in breach of the natural justice principle may be set aside or other remedies, such as removal of arbitrators, be ordered.

In Gas and Fuel Corporation of Victoria v Wood Hall Ltd and Leonard Pipeline Contractors Ltd[1978] VR 385, Marks J was satisfied that an arbitrator misconducted himself by denying the Gas and Fuel Corporation of Victoria the opportunity to be heard in respect of questions of fact and law, thus contravening the rules of natural justice. As a result, Marks J ordered that the arbitrator be removed with an order for costs in favour of the Gas and Fuel Corporation of Victoria.

Conversely, in Commonwealth of Australia v Cockatoo Dockyard Pty Ltd (1994) 11 BCL 443, Rolfe J declined an application by the Commonwealth of Australia to review an arbitrator’s decision to allow the defendant, Cockatoo Dockyard to amend its case in an arbitration. In doing so, Rolfe J stated that “There is no basis on the face of the reasons from which I can conclude the exercise of discretion miscarried” (715 at G). This is a case which demonstrates the role of the arbitrator in balancing discretionary powers with duties of natural justice and procedural fairness.

So, what may be a victory at first instance for the party favoured by the award, could actually mean further unnecessary costs and delays by additional appeal, stay or intervention proceedings.

Key takeaways

At first thought, it may be attractive for parties to have an option to set aside arbitral awards for breaches of the natural justice principle. However, this necessarily leads to additional proceedings, which means further delay and cost. It is entirely inconsistent with the objectives of arbitration (as a means of consensual and informal dispute resolution) for parties to engage in ongoing and acrimonious appeal proceedings on procedural matters. Even so, natural justice is a fundamental right of parties involved in legal proceedings and to ensure fair and equal justice it is important that its principles are observed. Hence, balance is required.

In light of the above, we offer the following key take-aways for preserving the integrity of an award in an arbitration from the natural justice perspective:

• Parties should, as far as possible, attempt to resolve procedural issues amongst themselves without recourse to arbitrators’ discretion.

• Parties should be mindful that asking an arbitrator to make a decision that will severely prejudice another party (such as asking the arbitrator to exclude the entirety of the other party’s evidence) may end up being counter-productive in the long run despite perceived short term gains.

• Instead, parties should consider framing requests to the arbitrator in terms which achieve balance between effective advocacy on the one hand and procedural fairness on the other (for example, making submissions on why the arbitrator should apply limited weight to the opposition’s evidence, rather than excluding it entirely).

• Parties should familiarise themselves with the arbitrator’s discretion and powers as set out in the applicable rules governing the arbitration and conduct proceedings accordingly.

• Parties should keep the fundamental principles of natural justice front of mind at all times when making decisions in respect of the arbitration.

If you have questions about an arbitration clause/award, or whether arbitration is the right dispute resolution mechanism for you, please get in touch with Gavin Stuart or David de Mestre.

Authors: Gavin Stuart & David de Mestre

You may also like to read - Making Australia a better place for arbitration - the new ACICA Rules