Supreme court of Queensland affirms high threshold for procedural fairness challenges to arbitral awards

In Clarke Energy (Australia) Pty Ltd v Power Generation Corporation (Trading as Territory Generation) and Robert Holt KC [2025] QSC 64, the Supreme Court of Queensland dismissed an application to set aside an arbitral award on the basis that it violated public policy due to a lack of procedural fairness.

The Court acknowledged that a significant denial of procedural fairness could warrant setting aside an award on public policy grounds, however there must be evidence of real unfairness or real practical injustice.

In this case, the Court found that there had been no denial of procedural fairness. The applicant claimed that the arbitrator had failed to determine an essential issue, in breach of the hearing rule. The Court dismissed this, finding that the issue in question was not raised by the applicant until its closing submissions in reply and therefore was not properly pleaded. The Court also found that the arbitrator had, in any case, dealt with the issue, and the applicant had suffered no practical injustice.

Background

The parties entered into two identical EPC contracts relating to power stations in the Northern Territory. Disputes arose under the contracts in relation to extensions of time and variations, and the applicant commenced arbitration proceedings under the ACICA Arbitration Rules. The arbitrator dismissed most of the applicant’s extension of time and variation claims and awarded substantial damages to the first respondent.

Subsequently, the applicant commenced proceedings in the Supreme Court of Queensland to set aside the award. The applicant relied on s 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld) (which reflects the UNCITRAL Model Law) to argue that the award was in conflict with the public policy of the State of Queensland because of a denial of natural justice. The applicant contended that natural justice in the arbitration proceedings required compliance with the hearing rule and argued that this had been breached because the arbitrator failed to consider or address an issue which was put before him from the notices of arbitration forward.

The applicant identified the following three issues for determination:

1. whether the issue arose for determination before the arbitrator;
2. if the issue did arise for determination, whether the arbitrator failed to determine the issue; and
3. if the arbitrator failed to determine the issue, whether that resulted in the applicant suffering practical injustice such that the award should be set aside.

Decision

In his judgment, Kelly J noted the need to promote, as far as practicable, uniformity in the application of Model Law provisions. His Honour noted the trend in authorities from Australia and other common law countries in the region to give a narrow meaning to public policy in this context, requiring that there must be “real unfairness or real practical injustice”. Kelly J also emphasised the deference which should be afforded to arbitral tribunals, noting that courts should refrain from evaluating the merits of an arbitration.

After considering the factual scenario of the arbitration proceedings, his Honour found that the issue which the applicant claimed had not been addressed by the arbitrator in fact did not arise for determination because it had not been pleaded. His Honour noted that the issue in question was not revealed in the applicant’s notice of arbitration, was not pleaded, and did not come within the tribunal’s jurisdiction by reason of the conduct of the arbitrations. It was raised for the first time in the applicant’s written closing submissions in reply.

His Honour commented that it is difficult to conceive of a situation involving an arbitral hearing where a substantial issue was not pleaded, and a party could nevertheless demonstrate real unfairness or real practical injustice in the conduct of the arbitration by reason of that issue not having been decided. His Honour also noted that, if the applicant wished to have the issue determined, it should have applied to amend its pleadings to bring the issue within the tribunal’s jurisdiction.

While it was not strictly necessary to decide whether the arbitrator failed to determine the issue, Kelly J found that the arbitrator did in any case consider the issue, and had decided against the applicant. His Honour also noted that the applicant suffered no practical injustice, since in the arbitration proceedings it had failed to prove that it had suffered any delay.

Comment

This case reaffirms the high threshold applicable to challenges of arbitration awards on grounds of denial of natural justice. There must be real unfairness or real practical injustice to amount to a violation of public policy.

This case also serves as a reminder to parties of the importance of clearly identifying issues for determination in their pleadings in order to avoid potential arguments regarding the scope of the dispute or the jurisdiction of the tribunal.