Two out of three ain't bad! Does it matter if a member of an arbitral tribunal does not actively participate?
Sean Kelly and Jonathan Tong
Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd [2017] WASC 379
To meet minimum standards, all arbitrators must genuinely engage and participate in an arbitration, but without direct evidence of an absentee arbitrator's actual conduct, it can be difficult to prove a breach. Does it matter if one member of an arbitral tribunal does not actively participate in the process? A recent case is a warning that an absentee arbitrator could undermine the validity and enforceability of an award, and highlights that the procedural flexibility inherent in arbitrations can be both a blessing and a curse, even though ultimately, in this case the award was not overturned because the applicant could not establish on the facts that the absentee arbitrator did not "hear" and "determine" the dispute (Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd [2017] WASC 379).
From procedural flexibility to "excessive delay" Structural Monitoring Systems Ltd (SMS), Tulip Bay Pty Ltd (Tulip) and Mr Davey entered into an agreement whereby SMS acquired intellectual property rights relating to certain technology Mr Davey had invented (Technology Agreement). A dispute arose between the parties, including in respect of alleged repudiatory breaches of the Technology Agreement. In mid-2012, SMS issued a notice referring the dispute with Tulip and Mr Davey to arbitration, and in accordance with the arbitration agreement three arbitrators were appointed. Over four and a half years later on 24 January 2017, the final amended award was delivered to the parties. SMS applied to the Supreme Court of Western Australia for orders under the now superseded Commercial Arbitration Act 1985 (WA) setting aside the award and removing the three arbitrators on ground of misconduct. The first two arguments related to alleged denial of procedural fairness and the excessive delay in the delivery of the award, and both were rejected on the facts of the case. However, the third argument was novel and raised a delicate question: whether an arbitral tribunal's award was invalid for misconduct if one member did not actively take part in the process. Genuine engagement in the process – an arbitrator's minimum standards Chief Justice Martin held that the source of the arbitrators' jurisdiction was the arbitration agreement. The relevant arbitration agreement contained the following terms: • the arbitration "shall be heard and determined" by three arbitrators; and • all decisions and awards "shall be made by majority vote of arbitrators". Two arbitrators prepared reasons and the absentee arbitrator subsequently concurred with them. In addition, the final awards only had provision to be signed by the two arbitrators who actively participated in the process.