Alternate interpretation does not make arbitral decision obviously wrong
June 16, 2023
In the recent decision of Factory X Pty Ltd v Gorman Services Pty Ltd  VSC 247, the Supreme Court of Victoria refused leave to appeal questions of law arising out of an arbitration award pursuant s 34A of the Commercial Arbitration Act 2011 (Vic) (the CCA). In refusing leave, the Court was required to consider whether, on the basis of the finding of fact in the award, the decision of the Tribunal on the question was obviously wrong.
Factory X (the Applicant) entered a ‘Class shareholders deed – LG Shares’ (the Deed) with Gorman Services (the Respondent) and other holders of those shares. The terms of the Deed granted Gorman Services four put options (the right to sell the shares at a specific price by a specific time). The parties varied clause 6.4(a) of the Deed to provide that the consideration to be paid for the shares subject of each option was their market value as determined by an expert. A dispute arose as to whether, when the shares the subject of any option were valued, their value must be determined:
a) as at the date of valuation, as contended by the Applicant; or
b) as at the date when notice was given for the exercise of the option, as contended by the Respondent.
The Applicant referred the dispute to arbitration which was determined in favour of the Respondent. The Applicant sought leave to appeal the arbitral decision on several questions of law, including the interpretation of clause 6.4(a) of the Deed on the basis that the Arbitrator’s decision on the question was ‘obviously wrong’.
In its submissions, the Applicant contended that its interpretation of clause 6.4(a) was ‘obviously or plainly right’ and therefore, the Tribunal’s decision was ‘obviously wrong’. The Applicant contended that ‘the Shares’ meant ‘the Shares the subject of the Put Option’ and the Arbitrator’s contrary understanding of ‘the Shares’ as all the ‘LG’ class shares was ‘obviously wrong’. In rejecting the application, Croft J accepted the Respondent’s submission that the Arbitrator’s decision ought not to be considered ‘obviously wrong’ only because the Court might have adopted a different construction of clause 6.4(a), or any other provisions of the Deed.
Analogising with the South Australian Court of Appeal in Inghams Enterprises Pty Ltd v Southern Cross Farms Australia Pty Ltd (see our update here), Croft J held the drafting in the deed lacked clarity, allowing the Applicant to make submissions as to why its interpretation may be preferable. His Honour declined to address whether the Court held a different view on the construction of the clause to that of the Arbitrator.
However, His Honour held that the possible merits of the Applicant’s construction of the clause do not render the Arbitrator’s decision ‘obviously wrong’ for the purpose of s 34A of the CCA. Relevantly, His Honour noted that the Applicant’s construction had been considered and rejected by the Arbitrator and that this analysis did not lead to obvious error in his decision.
The provision in s 34A is uniform across each Australian jurisdiction.
The full decision can be found here.