Clarke Energy case confirms tough test to overturn arbitral awards

The judgment in Clarke Energy Pty Ltd v Power Generation Corporation reaffirms the high threshold for setting aside arbitral awards on public policy grounds. This case underscores the importance of precise pleadings and the courts’ deference to arbitral processes

Key takeaways

• Clarke sought to set aside an arbitral award on the basis of alleged denial of natural justice. The application was brought under s 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld), which permits a court to set aside an award if it is in conflict with public policy of Queensland.
• Clarke alleged that the arbitrator failed to consider a central contractual issue—whether TG had an obligation to act “fairly and reasonably” under cl 38.4 of the EPC contracts in determining extension of time (EOT) claims and variations (Fairly and Reasonably Requirement Issue), even where Clarke had not complied with mandatory notice provisions.
• The Court dismissed the application, finding that the “Fairly and Reasonably Requirement Issue” was not adequately pleaded in the arbitral proceedings, nor did it arise with sufficient clarity to engage the arbitrator’s duty to address it.
• Kelly J found that Clarke Energy had only addressed the Fairly and Reasonably Requirement issue in their closing submissions and this matter was not included in the Notices of Arbitration or the pleaded case, thus falling outside of the arbitrator’s jurisdiction.
• Kelly J goes further to acknowledge that it would be unreasonable to require an arbitrator to address every argument that goes beyond the ‘essential issues’ in an arbitration.
• Notwithstanding the above, Kelly J, in any event, considered the arbitrator had fairly identified and considered the construction of clause 38.4 (which the Fairly and Reasonably Requirement was alleged to have arisen in respect of), and therefore there would be no grounds in any event to argue that the arbitrator was in breach of the hearing rule. Practically, because the arbitrator had considered the matter (even if not required), there could not be a failure to consider an essential issue.
• Kelly J also determined that Clarke had failed to prove delay. This was therefore an independent reason for concluding that, had there been a breach of natural justice, Clarke would not have suffered practical injustice that would warrant the setting aside of the Arbitration Award.
• Kelly J held that the arbitrator’s threshold approach—declining to consider the merits of claims where conditions precedent had not been met—did not amount to a breach of natural justice. The judgment affirms the high threshold for setting aside arbitral awards under public policy grounds, underscores the importance of proper pleading in arbitral proceedings, and reflects judicial restraint in reviewing the merits of arbitral awards.

Background

Clarke, as the contractor, and TG, as the owner, entered into two engineering, procurement and construction (EPC) contracts for gas-fired power generation facilities at Owen Springs and Tenant Creek in the Northern Territory.

Disputes arose regarding extension of time (EOT) claims and variations under both contracts. Pursuant to the arbitration clause, Clarke commenced arbitral proceedings, and Robert Holt KC was appointed as sole arbitrator. The arbitrations were heard jointly and culminated in a partial award delivered in July 2023, largely dismissing Clarke’s claims and allowing TG’s counterclaims.

Clarke subsequently applied under s 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld) (the Act) to set aside the award on the basis that it conflicted with public policy—specifically, due to an alleged denial of natural justice.

Issues 

Did the “Fairly and Reasonably Requirement Issue” arise for determination before the arbitrator?

Clarke contended that clause 38.4 of the contract imposed a requirement for TG to act “fairly and reasonably” in assessing EOT claims—even in instances of Clarke’s non-compliance with the notice provisions in cls 38.1 to 38.3. Clarke characterised this as the “Fairly and Reasonably Requirement”, arguing that the arbitrator failed to address this issue, constituting a denial of procedural fairness and thereby breaching public policy under s 34(2)(b)(ii) of the Act.

If so, did the arbitrator fail to determine it? If the arbitrator failed to determine it, did Clarke suffer practical injustice such that the award should be set aside?

Clarke submitted that the arbitrator effectively refused to consider this issue, relying heavily on paragraph 188 of the award, where the arbitrator stated he would not assess the merits of claims if mandatory notice provisions were not complied with.

Reasoning

Kelly J rejected Clarke’s application, finding:

1. The Fairly and Reasonably Requirement Issue was not adequately pleaded in Clarke’s statements of claim during the arbitration. Clause 38.4 was referenced, but there was no express or particularised pleading of the nuanced construction now relied upon.
2. The Alstom Ltd v Yokogawa Australia Pty Ltd & Anor [2012] SASC 49 decision, which Clarke now relied on as underpinning the Fairly and Reasonably Requirement, was not raised until its closing reply submissions, contrary to the arbitrator’s directions that reply submissions were to be strictly responsive.
3. The arbitrator was entitled to adopt a threshold approach—considering whether the conditions precedent to entitlement (under cls 38.1–38.3 and related provisions) were satisfied before examining the merits of claims.
4. A failure to consider every argument is not a denial of natural justice. The arbitrator was entitled to focus on essential issues, and the omission of a belatedly introduced construction argument did not amount to real unfairness or practical injustice.

Outcome

The Court held that Clarke failed to establish that the award was in conflict with the public policy of Queensland due to the denial of natural justice. The application to set aside the arbitral award was therefore dismissed.

What’s next

Read our next case note on the recent decision in Elecnor Australia Pty Ltd v Clough Projects Australia Pty Ltd [2025] NSWSC 610, where we examine disputes involving engineering contracts and the interpretation of critical contractual provisions.

For more information, please contact Veno Panicker or Elena Stojcevski.