In Fremantle Port Authority v Martin [2025] WASC 301, the Western Australian Supreme Court clarified the basis for setting aside an award when an arbitrator acts beyond jurisdiction.

The Fremantle Port Authority (the plaintiff) and Container Refrigeration (the second defendant) entered into a longstanding agreement to lease land around the Port of Fremantle. The second defendant was required under the lease to develop the land and in turn would receive a ‘fair value’ for the improvements made. The ‘fair value’ was determined by a mechanism under the lease, whereby each party would appoint a valuer to determine the compensation. Where the valuers disagreed, an arbitrator would step in to resolve the differences between them.

At the conclusion of the lease, the parties took steps to determine a ‘fair value’ and compensation for the improvements. A dispute arose on the construction of the lease as to whether the balance of the term of the lease was a relevant factor in valuing the improvements (which could have reduced the ‘fair value’ to $0).

The parties appointed the defendant Arbitrator in accordance with the arbitration clause in the lease. The plaintiff contended that the preliminary question as to the construction of the valuation clause was required to be referred to the Court. After considering submissions as to the scope of his jurisdiction, the Arbitrator concluded that neither party’s valuations complied with the contractual requirements. In his determination, the Arbitrator did not consider whether the balance of the term of the lease was a relevant factor in determining the ‘fair value’, a central point of difference between the valuers. The plaintiff subsequently sought to have the arbitral award set aside under s 34(2) of the Commercial Arbitration Act 2011 (WA) (CAA).

The Court found that there had been a material denial of procedural fairness as the plaintiff had not been afforded an opportunity to put on submissions regarding the construction issue. Further, there was a real possibility of a more favourable outcome if the plaintiff had the opportunity to develop its arguments and the Court should accordingly exercise its discretion to set aside the Determination.

In considering the scope of the Arbitrator’s jurisdiction, the Court applied the recent High Court decision of CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28 which found that the question of whether an arbitrator exceeds jurisdiction must be made by reference to the terms of the arbitration agreement, without deference to the Arbitrator’s interpretation. In this case, the lease granted the Arbitrator “a narrow and confined authority to resolve identified ‘differences’ between the parties’ valuers” – the Arbitrator was not authorised to focus on the approach of the valuers or determine the final value. Accordingly, the Court found that the Arbitrator exceeded his authority by addressing a dispute not contemplated by the referral.

The arbitral award was set on this basis. The Court then exercised its power under s 16(9) of the CAA, directing and confining the Arbitrator’s role to resolving the differences in the valuations based on whether the balance of the term of the lease is a relevant factor.

The full judgment can be viewed here.