Setting Aside Arbitral Awards: A High Bar for Procedural Fairness Challenges

On 31 March 2025, the Supreme Court of Queensland delivered its judgment in the matter of Clarke Energy (Australia) Pty Ltd v Power Generation Corporation (Trading as Territory Generation) and Robert Holt KC [2025] QSC 64 (Clarke Energy).

In this matter, the Supreme Court dismissed an application to set aside an arbitral award on the basis there was a lack of procedural fairness which violated public policy.

In Clarke Energy, the parties entered into two identical engineering, procurement and construction contracts regarding power stations located in the Northern Territory. Arbitration proceedings were commenced under the ACICA Arbitration Rules for disputes concerning extensions of time and variations.

On 21 July 2023, the arbitrator delivered a partial award dismissing most of the applicant’s claims with damages awarded to the first respondent.

Subsequently, the applicant commenced proceedings in the Supreme Court of Queensland to set aside the arbitral award, alleging a lack of procedural fairness contrary to public policy of the State of Queensland. The conflict with the public policy is alleged to have arisen because of a denial of natural justice. The applicant contended that the content of natural justice in arbitrations required compliance with the fair hearing rule which requires a decision maker to afford a person an opportunity to be heard before making a decision affecting their interests. The applicant alleged the arbitrator failed to consider issues put before him in breach of the fair hearing rule.

Promoting consistency in domestic and international arbitration standards

In its submission, the applicant solely relied on s 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld) (the Act) which states that an “arbitral award may be set aside by the Court only if the Court finds that the award is in conflict with the public policy of this State.” This section substantially follows the UNCITRAL Model Law (Model Law) on International Commercial Arbitration.

The paramount object of the Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense. With this in mind, his Honour Kelly J also highlighted the need to promote uniformity between the application of the Act to domestic commercial arbitrations and the application of the Model Law to international commercial arbitrations and the observance of good faith. 

His Honour referred to TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361 (TCL) which noted the importance of paying regard to decisions in other countries which also model their law on the Model Law for the facilitation of a degree of international harmony and concordance of approach to international commercial arbitration. In TCL, the Court endorsed the judgment of the Court of Final Appeal of Hong Kong in Hebei Import & Export Corporation v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111,in which the presiding judges said that:

1. an “award must be so fundamentally offensive to [a] jurisdiction’s notions of justice that, despite its being a party to the Convention, it cannot reasonably be expected to overlook the objection.”
2. the public policy ground is limited to cases where an award is “contrary to the fundamental conceptions of morality and justice” of the forum.

In TCL, it was held that to succeed in setting aside an award under Article 34 of the Model Law (of which s34 of the Act is modelled), the applicant must demonstrate that it had suffered “real unfairness or real practical injustice” in how the arbitration was “conducted or resolved by reference to established principles of natural justice or procedural fairness”.

Decision

Adopting this same view and emphasising that courts should avoid assessing the merits of an arbitration, his Honour found against the applicant.

His Honour found that the issue in question was not revealed in the applicant’s notice of arbitration, was not pleaded, did not come within the tribunal’s jurisdiction by reason of the conduct of the arbitrations and was only raised for the first time in the applicant’s written closing submissions in reply.

His Honour commented that it is difficult to understand how there could possibly be a case of real unfairness or real practical injustice against a party because a substantial issue, which was not pleaded, was not decided by the arbitrator. His Honour also identified that if the applicant wanted the issue to be considered, it should have requested to amend its pleadings to bring the matter within the tribunal’s authority.

More broadly, the Clarke Energy decision also protects the authority of an arbitral decision by indicating that the court’s role should be limited to dealing with arbitral missteps that are real and substantial, rather than merely technical or procedural.

In any case, his Honour found that the arbitrator did in fact consider the issue and had decided against the applicant. His Honour also noted that the applicant suffered no practical injustice, since it had failed to prove that it had suffered any delay in the arbitration proceedings.

Key takeaways

In Clarke Energy, his Honour demonstrated a real emphasis on ensuring consistency between the application of the Act to domestic commercial arbitrations and the application of the Model Law to international commercial arbitrations.

In line with various domestic and international authorities, the Clarke Energy decision reaffirms the high threshold applicable to challenges of arbitration awards on grounds of denial of natural justice. There must exist real unfairness or real practical injustice to amount to a violation of public policy, which may only be enlivened where there is a breach of the fundamental conceptions of morality and justice.