Chapter 18 Arbitration

Commercial arbitration is when a dispute is referred if, as a result of the requirements of the construction contract, there is an ‘arbitration agreement’ requiring the dispute to be determined by a person (arbitrator) other than a court.

Arbitration between Australian parties, sometimes called ‘domestic arbitration’, is regulated and sanctioned by Commercial Arbitration Acts. In recent years States and Territories, with the exception of the Australian Capital Territory, have enacted new laws to align the Australian position with the international arbitration regime.

In Australia, the following Commercial Arbitration Acts are in force:

The arbitration agreement, usually set out in the construction contract, either explicitly or by reference, creates and defines the powers of the arbitrator and, with the relevant Commercial Arbitration Act, the procedures of the arbitration.

An arbitration agreement must be in writing. An agreement which permits one party only to refer a dispute to arbitration may be a valid arbitration agreement.

Subject to the terms of the arbitration agreement, the parties may appoint the arbitrator. The number of arbitrators will generally be stipulated in the arbitration agreement which may provide for a single arbitrator or a tribunal of three or more. Traditionally, senior lawyers, engineers or other construction professionals are appointed as arbitrators in construction disputes.

A validly appointed arbitrator has jurisdiction to determine those matters referred to the arbitrator in the notice of dispute and within the scope of the arbitration agreement. A properly drafted arbitration agreement will ensure that all matters of dispute that may arise in connection with the contract can be referred to arbitration.

Arbitrations are usually conducted as a series of meetings and finally a formal hearing, which in Australia often mirrors the approach and processes of the courts. This is notwithstanding that the relevant Commercial Arbitration Act provides that, subject to the agreement of the parties as to process, the arbitrator or arbitral tribunal ‘may conduct the arbitration in such manner as it considers appropriate’ (Commercial Arbitration Act 2010 (NSW)). The arbitration is generally conducted without applying the rules of evidence which apply in the courts.

The determination of an arbitrator is called an ‘award’. An award is final and binding and has the effect of terminating the arbitral proceedings.

The rights of appeal against an arbitral award are extremely limited. An application to the court must be made within three months, either:

  • to set aside the award which may only be made effectively on the basis of some failure of the arbitration process, such as misconduct of the arbitrator; or
  • by appeal to the court on a question of law, either with agreement or with the leave of the court.

Each party is under an obligation to comply with the terms of an award. The various Commercial Arbitration Acts provide that an arbitral award is binding and, on application in writing to the court, may be enforced as a judgment of the court.

International Arbitration

International arbitration between parties of different nationalities is subject in Australia to the International Arbitration Act 1974 (Cth) (Act). The Act governs Australia’s obligations to recognise and enforce foreign arbitration agreements and arbitral awards.

Unless the parties to an international arbitration agreement otherwise agree in writing, the dispute will be determined in accordance with the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (UNCITRAL Model Law), a set of rules on arbitral procedure which take into account the particular features and needs of international commercial arbitration.

The principal benefit of international arbitration is the creation of an award which is capable of enforcement in all countries which are signatories to the Convention on the Recognition Enforcement of Foreign Arbitral Awards (the New York Convention). As at August 2020, there are 166 contracting states to the New York Convention. By way of comparison, Australia has in place bilateral treaties for the enforcement of its court judgments with a much smaller number of countries.

Ideally, construction contracts between parties of different nationalities should always include an international arbitration clause, particularly where there is doubt about the enforceability of judgments between the relevant countries and / or enforcing security.

On 17 June 2010, the Commonwealth Parliament of Australia amended the Act to improve its effectiveness. The International Arbitration Amendment Act 2010 confines the circumstances in which the courts can set aside an award or refuse to enforce foreign awards. The Act now requires that, in making a decision, a court must have regard to the fact that arbitration is an ‘efficient, impartial, enforceable and timely’ method of dispute resolution. The aim behind the amendments was to make Australia a more attractive venue for parties from around the world to resolve their disputes.