Application of Natural Justice in Arbitration: An Irreconcilable Legal Proposition

By Sandeep Suresh

Sandeep Suresh is a fourth-year law student at the National Law University in Jodhpur, India.

Administrative law, which oversees activities of administrative departments of the government, has been gaining popularity as more government agencies were established to manage the augmenting complex social, economic, and political spheres of society. Natural justice principles form a substantial part of this branch of law and apply wherever an administrative decision is involved. Rights and duties in this field are not purely private and are mostly broad in nature with implications for the general public.  

Understanding the nature of arbitration, in addition to its legal definition, is also necessary. A truly private mechanism of dispute resolution, arbitration is based on party consensus, and only private commercial matters involving in personam rights are adjudicated. Procedural flexibility, which gives parties complete autonomy of deciding the arbitral procedures and place of hearing, provides arbitration the upper edge over court litigation. 

Therefore, being totally dissimilar in nature, the two concepts of arbitration and natural justice cannot be clubbed together. The objective here is not to completely disregard the importance of natural justice in any decision-making institution, and make arbitration a free-to-do-anything mechanism. In fact, the UNCITRAL Model Law, which every nation has used as the base for developing its own arbitration law, prescribes that every arbitration proceeding should be underpinned by elements of natural justice such as the opportunity to present the case fully and proper notice of hearing. [1]

However, this alternate dispute resolution mechanism cannot be equated to courts and therefore cannot be expected to keep the same level of procedural strictness. Moreover, the primary objective of introducing arbitration was to provide convenience and flexibility for the parties. The Model Law has not indicated any intention to raise breach of natural justice to the level of ‘public policy’ contravention as it is given under Article 34(2)(b)(ii) for challenging arbitral awards. The flexible nature of arbitration would have definitely been thwarted if it was done so.

Despite stark differences, Australia has attempted to harmonise the two legally-opposed worlds. Australian law on arbitration twisted the Model Law provision on public policy to include breaches of natural justice as violation of Australian Public Policy, based on which arbitral awards can be challenged.[2] Unfortunately, the courts have also taken advantage of this provision to scrutinise arbitral awards more deeply.

In Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd, the court stated certain guidelines for determining breach of natural justice in every case.[3] The prescribed test would require the courts to closely examine the merits of each award in terms of evidence and hearing rules.[4] These elements ought to be present in every judgment or arbitral award. However, raising such procedural violations to the level of contravention of a nation’s public policy is stretching it far too beyond the legal limitations.

In 2011, in the case of Westport Insurance Corporation v Gordian Runoff Ltd, the High Court of Australia set aside an arbitration award for inadequacy in reasoning provided by the arbitrators. In coming to this conclusion, the High Court stated that: “...it is going too far to conclude that performance of the arbitral function is purely a private matter of contract, in which the parties have given up their rights to engage judicial power, and is wholly divorced from the exercise of public authority.”[5] Even though this judgment does not explicitly discuss the application of natural justice in arbitration, it displays the overreach of the judiciary into the purely private domain of arbitration.

Arbitration was established as a ‘parallel’ dispute resolution mechanism only as an alternative to courts. The aim was to achieve faster resolution of disputes in today’s hasty commercial world. Therefore, the Model Law was explicit with regard to making court intervention minimal in matters of arbitration.[6] While the Westport decision only affects domestic arbitration in Australia, it must be feared that the same may affect adversely the world’s perception of Australia’s merit as a favourable jurisdiction for arbitration.

In conclusion, if the trend of public law elements leaking into arbitration continues, flexibility—the positive of arbitration—will be watered down. The principle objective of arbitration is to minimize court intervention and hence achieve faster dispute resolution. However, excessively allowing breach of natural justice to be used as a challenge to arbitral awards would encourage constitutional courts to closely examine arbitral awards on their merits.

It would be noteworthy to appreciate some positive indications from the Singapore Supreme Court. In the case of TMM Division Maritima SA de CV v. Pacific Richfield Marine Pvt. Ltd, the court held that “integrity and efficacy of arbitration as a parallel dispute resolution system will be subverted if the courts appear unwilling to restrain themselves from entering into the merits of every arbitral decision....” [7]

 The Singapore Supreme Court in BLB & another v. BLC and another also portrayed a practical approach when it stated that even if breach of natural justice is established, the courts must remit the matter to a new arbitral tribunal and should not completely set aside the award.[8]

Ideally, the Australian courts should take cues from these decisions.


[1] Article 18 and Article 34(2)(a)(ii)
[2] Section 19, International Arbitration Act 1974:
Without limiting the generality of Articles 17I(1)(b)(ii), 34(2)(b)(ii) and 36(1)(b)(ii) of the Model Law, it is declared, for the avoidance of any doubt, that, for the purposes of those Articles, an interim measure or award is in conflict with, or is contrary to, the public policy of Australia if:
a) the making of the interim  measure or award was induced or affected by fraud or corruption; or
b) breach of the rules of natural justice occurred in connection with the making of the interim measure or award.
[3] [2012] FCA 1214 
[4] Paragraph 60 of the judgment
[5] [2011] HCA 37
[6] Article 5
[7] [2013] SGHC 186
[8] [2013] SGHC 196

Photo Credit: Flickr User Sam Howzit