The arbitration arose under a share sales agreement incorporating the UNCITRAL Arbitration Rules and providing for Melbourne as the seat of arbitration. Esposito Holdings Pty Ltd (Esposito) agreed to sell the issued shares in 5 Star Foods to UDP and William Yan Sui Hui (Hui) agreed to act as guarantor for UDP. Esposito brought a claim against both UDP and Hui for the payment of the money that was allegedly due for the sale of the shares.
The Arbitral Proceedings
Esposito sought a preliminary hearing to determine some parts of its claim. The arbitrator granted its request, noting that the preliminary hearing should be contained to Esposito’s claim and would not touch upon the defences and set offs raised by the respondents. UDP and 5 Star Foods did not take part in the preliminary hearing and together with Hui served their amended defences and counterclaims. The arbitrator made a partial award, dealing with these issues and despite his earlier indication regarding Esposito’s claims, his reasoning included the availability of defences and set offs raised by the respondent.
Hui, UDP and 5 Star Foods requested that the arbitrator set aside his partial award and withdraw himself from office, on the alleged basis of procedural unfairness and perceived bias. The arbitrator rejected the application to set aside his award dealing with the defences and set offs and refused to withdraw from the case. In response, the respondents applied to the Federal Court to set aside the award and requested that the arbitrator be removed.
The Federal Court Proceedings
The Federal Court found that both the parties and the arbitrator understood that the preliminary hearing would not touch upon the availability of defences and set offs. Given that the arbitrator had decided on these issues in his partial award, the applicants had lost the opportunity to argue these defences. Furthermore, the Federal Court noted the following points:
- Under Article 34 of the UNCITRAL Model Law the court can set aside an arbitral award only in limited circumstances;
- To justify the setting aside of the award, the court has to find real unfairness or practical injustice arising out of the parties’ inability to present their case;
- Such unfairness can arise where there is a realistic chance that the award may not have been made or may have been materially different if the parties’ opportunity to present their case had not been denied;
- The burden of proving the above points rests on the party seeking to set aside the award.
With regard to the independence and impartiality allegations of the arbitrator, the Federal Court considered the “real danger of bias” test in Section 18A(2) of the International Arbitration Act 1974, concluding that where there was no allegation of actual bias the court should take the approach of a reasonable man to check for the “real danger of bias”.
Sabina Adascalitei LLB, LLM, MCIArb
Research and Academic Affairs Coordinator