Factory X Pty Ltd v Gorman Services Pty Ltd [2023] VSC 247

Nikki Miller |  Chris Hey  |  Jacob Broderick

Key takeout

• The right to leave to appeal an arbitral award on the basis that the arbitrator’s decision was ‘obviously wrong’ under section 34A of the Commercial Arbitration Act 2011 (Vic) (Act) is narrow.
• The purpose and object of the Act and that of the section 34A indicate that the fact a court may make a different decision to the arbitrator will not be enough to grant leave to appeal.
• To do so would mean that the proceeding becomes a rehearing of the substance of the arbitral proceedings, a process which is not available under section 34A.

Facts

In 2019 Ms Gorman sold the business of the Gorman fashion brand (company) which designs, produces and sells women’s apparel and accessories.  As part of the business sale, Gorman Services (an entity controlled by Ms Gorman) was granted four put-options, each over one quarter (or 6.25%) of the total issued shares in the company which could be exercised upon 6 months written notice.

In August 2021, Gorman Services sought to give the company 6 months written notice that it would be seeking to sell its entire 25% stake in the purchaser company.  Four disputes arose in relation to Gorman Services’ purported exercise of the put options. 

The disputes were referred to arbitration before Mr Justin Gleeson SC (arbitrator).  The arbitrator found in favour of the company on the first and second disputes, and in favour of Gorman Services on the third and fourth disputes (award).

The company sought leave to appeal the award on the third and fourth disputes on the basis that the arbitrator’s decision was obviously wrong under section 34A of the Act.

Decision

The Supreme Court of Victoria refused leave to appeal the award. 

The involvement of the court in re-examining substantive matters, including the merits of arbitral awards is highly constrained under the Act. 

Section 34A of the Act provides a limited ‘opt-in’ appeal regime.  Parties must agree that decisions of an arbitral tribunal will be reviewable by a court in accordance with section 34A, which the parties had done so in this case.    

The court observed that s 34A does not confer an ‘unfettered right of appeal on the parties‘ and all of the requirements of s 34A must be satisfied for a court to overturn the decision of an arbitrator.  Relevantly, ss 34A(3)(c)(i) provides that the ‘court must not grant leave to appeal the relevant arbitral award unless it is satisfied that, on the basis of the findings of fact in the award, the decision of the tribunal on the question is obviously wrong‘.

Having regard to the nature and scope of s 34A, the object and purpose of the Act and the authorities, the court held that it was not appropriate to consider in any detail the issues the subject of the third and fourth disputes because to do so would mean that the proceeding became in effect, a rehearing of the substance of the arbitral proceedings, a process which is clearly not available under s 34A.

This would provide for a rehearing of matters which were argued before, and rejected by, the arbitrator on the basis of comprehensive reasoning.  The court held this was significant in this case as there was no argument that the arbitrator applied incorrect legal principles in his construction of the provisions of the share sale deed.

The court accepted Gorman Services’ submissions that the arbitrator’s decision ought not to be considered ‘obviously wrong’ because the court might have adopted a different construction of the share sale deed (although the court also said it should not be taken that the court did or did not have a view on the construction of the provisions of the deed different to that of the arbitrator).

Therefore, the court refused leave to appeal the Award under section 34A of the Act, and by extension declined to review the Arbitrator’s decision in relation to the third and fourth disputes.

Section 34A of the Victorian Act is uniform across all Australian jurisdictions.