Arbitration is one of the most commonly used forms of alternative dispute resolution (ADR) within the construction industry, and trying to strike a balance between procedural fairness and finality can impose a number of challenges when relying on a third party to make a determination. Prior to the Commercial Arbitration Bill 2013 (Qld) coming into force, arbitration via the Commercial Arbitration Act 1990 (Qld) was a drawn out and costly process, with the undesirable outcome of having some awards set aside due to insignificant procedural breaches of natural justice. The Hon Chief Justice Spigelman AC remarked in 2009, that the previous legislation was out of date, and that the process had become unwieldy. The introduction of the new regime now brings Queensland’s arbitration laws in line with the world’s best practices by facilitating fair and final resolution of construction disputes, allowing for natural justice to hopefully come to the fore.

The common law and natural justice

The traditional common law approach is to afford natural justice in litigation, and the courts have also extended the concept to procedural fairness in administrative decision-making.

In Kioa v West (1985) 159 CLR 550, Mason J said (at 583-584):

“It has been said on many occasions that natural justice and fairness are to be equated … And it has been recognized that in the context of administrative decision-making it is more appropriate to speak of a duty to act fairly or to accord procedural fairness. This is because the expression “natural justice” has been associated, perhaps too closely associated, with procedures followed by courts of law. The developing application of the doctrine of natural justice in the field of administrative decision-making has been very largely achieved by reference to the presence of characteristics which have been thought to reflect important characteristics of judicial decision-making. The law has now developed to a point where it may be accepted that there is a common law duty to act fairly, in the sense of according procedural fairness, in the making of administrative decisions which affect rights, interests and legitimate expectations, subject only to the clear manifestation of a contrary statutory intention.”

However, natural justice within the administrative decision-making framework extends only so far as to what is fair within each individual case, as the Hon Chief Justice Robert French noted: “In speaking about procedural fairness in administrative decision-making, it is necessary to acknowledge, as the law does, that, as a practical matter, its content will vary according to the context.” ²

Although, natural justice within the public administrative decision-making sphere has been established by the courts: What about natural justice in private decision-making procedures, such as the case in construction disputes? Beyond any contractual or statutory provisions, the courts have generally been reluctant to apply natural justice in private proceedings.

When looking to the common law rules in regards to natural justice, Marks J in Gas & Fuel Corporation of Victoria v Wood hall Ltd outlined two broad principles, with his Honour stating the following:

“The first is that an adjudicator must be disinterested and unbiased. This is expressed in the Latin maxim – nemo judex in causa sua [no-one should be a judge in their own cause]. The second principle is that the parties must be given adequate notice and opportunity to be heard. This in turn is expressed in the familiar Latin maxim – audi alteram partem [hear the other side] … each of the two principles may be said to have sub-branches or amplifications. One amplification of the first rule is that justice must not only be done but appear to be done … Sub-branches of the second principle are that each party must be given a fair hearing and a fair opportunity to present its case. Transcending both principles are the notions of fairness and judgment only after a full and fair hearing given to all parties.”³

Beyond the two broad principles, decision-makers when exercising natural justice, must also base their decisions on logically probative evidence, as was noted by Lord Diplock:

“The requirement that a person exercising quasi-judicial functions must base his decision based on evidence means no more than it must be based upon material which tends logically to show the existence or non-existence of facts relevant to the issue to be determined, or to show the likelihood or unlikelihood of the occurrence of some future event the occurrence of which would be relevant.” ⁴

Does legislation provide for review of arbitration determinations?

The use of arbitration in construction is generally consensual, therefore, parties “are not compelled to resolve their disputes by arbitration” ⁵ but rather, “they do so because that is their agreement” observed Stevenson J. ⁶

Due to the fact that arbitration is largely a private mechanism used by the construction industry, how much effect does the common law have when reviewing arbitral awards? It may appear that the court has limited supervisory jurisdiction in reviewing arbitration determinations, however, there appears to be some scope for the exercising of supervisory powers by the court through legislation under certain conditions. ⁷

Fairness and natural justice: Arbitration under the new regime

The introduction of the Uniform Domestic Commercial Arbitration legislation by way of the Standing Committee of Attorney-General (SCAG), provides more fairness and finality in the resolving of commercial disputes via an impartial arbitral tribunal, dispensing with unnecessary delays or expense. ⁸

The legislation based upon the UNICITRAL Model Law of International Commercial Arbitration (the Model Law), grants the court the power to set aside an arbitral award that conflicts with public policy, if it was “induced by or affected by fraud or corruption or a breach of the rules of natural justice… in connection with the making of the award.”⁹

Under the new commercial arbitration regime, a number of important changes have been introduced with the aim of facilitating a fair and final resolution in construction disputes.

Previously under the former Act, a court was able to use their discretion to stay proceedings if a party to arbitral proceedings brought concurrent proceedings. However under the new regime, if a dispute is able to be resolved through arbitration, the court is compelled to stay proceedings while the action is arbitrated – provided the parties to a dispute are subject to a valid arbitration agreement (s 8).

Furthermore, the new legislation allows for an optional appeals mechanism that will not become operational without the consent of the parties, and the court’s leave in regards to questions of law. The ability for the court to set aside an award can only be made on limited grounds, such as: breaches of natural justice, incapacity, invalidity, public policy, and whether the subject matter can be legally arbitrated.

Under the previous legislative regime, the application of natural justice was a cumbersome and inflexible process. However, the new commercial arbitration laws provides certainty, finality and efficiency – allowing for the court to set aside any arbitral award that is an antithesis to fairness or natural justice in construction disputes.

This article or the information contained therein does not purport to provide a full explanation of the law, give advice or any guidance to anyone in connection with the New Commercial Arbitration Act or construction disputes or drafting of construction contract or other issue and this article is not to be used by anyone to support their legal position or otherwise. For clarification purposes and further to the above this article does not purport to be advice in relation to any matter. This firm cannot take responsibility for any action readers take based on this information. We would be happy to assist you with any property, real estate, development, building, construction and engineering related legal issues you may have. Please get in touch via [email protected] or telephone our Brisbane office on (07) 3087 3463 or Sunshine Coast office on (07) 5413 9270 and one of our experienced lawyers will respond to you.

¹Jones. D, Commercial Arbitration in Australia Second Edition, Thompson Reuters (Professional), 2013 citing Hon Chief Justice Spigelman AC, New South Wales Supreme Court, November 2010.
²French RS, Procedural Fairness – Indispensible to Justice?, Sir Anthony Mason Lecture, Presented to the University of Melbourne Law School, Law Students’ Society (Melbourne, 7 October 2010) p 3.
³Gas & Fuel Corporation of Victoria v Wood Hall Ltd [1978] VR 385 at 396.
⁴Ibid.
⁵Rv Deputy Industrial Injuries Commission, Ex parte Moore [1965] 1 QB 456 at 488.
⁶Ashjal Pty Ltd v Alfred Toepfer International (Australia) Pty Ltd (2012) 82 NSWLR 93 at [54].
⁷For example, s 34(2) of the Commercial Arbitration Act NSW (2010).
⁸_s 1C(1) of the new Uniform Domestic Commercial Arbitration Act.
⁹See the Explanatory Notes to the Commercial Arbitration Bill 2010 (NSW).