Despite being a late bloomer in the field of International Arbitration, amendments to Australia’s International Arbitration Act 1974 (Cth) (International Arbitration Act) in 2010 and a string of pro-arbitration decisions of the nation’s courts mean that Australia is well placed to become a one stop shop for those seeking to resolve commercial disputes quickly and fairly in a ‘stable and supportive political and legal system’, as stated by Victorian Supreme Court Chief Justice Marilyn Warren. Those who chose to have their disputes resolved through arbitration, or who choose to enforce a foreign arbitral award in Australia can have confidence that they will receive the support of the country’s judiciary.

Arbitration and cross-border disputes

The International Arbitration Act 1974 (Cth) was Australia’s legislative response to the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention),  Australia’s adoption of the and the 1985 UNCITRAL Model Law on International Commercial Arbitration (Model Law) promoted a major revision of the Act.
However, a number decisions by the Australian courts including, Australian Granites Limited v Eisnewerk [2011] 1 QD R 461, Resort Condominiums International Inc v Bolwell and Another [1995] 1 Qd R 406 , Esso v Plowman (1995) 183 CLR 10 and American Diagnostica Inc v Gradipore (1998) 44 NSWLR 312, created uncertainty in the law and gave the perception that Australian courts approach to arbitration was interventionist in an unhelpful way. The amendments to the International Arbitration Act passed in 2010 clarify that Australian courts are to discharge their duties in accordance with the pro-enforcement and pro-arbitration policy that underlies the International Arbitration Act and recent decisions also illustrate that the courts are taking a supportive stance towards international arbitration.

International Arbitration Amendment Act 2010 (Cth) (Amendment Act)

The amendments made to the International Arbitration Act in 2010 adopt the 2006 amendments to the Model Law and make a number of other changes that reflect the fact that the vast majority of parties to international commercial disputes seek resolution through arbitration and ensure that the Australian legal system respects this choice. Trust and enforceability is required in order for Australia to be recognised as a pro-arbitration nation and this is what the 2010 amendments provide. The key provisions of the Amendment Act are discussed below.

Objects Clause

Before examining in detail some of the more specific amendments to the International Arbitration Act, the ‘objects’ of the Act contained in the new section 2D must be given due attention.
Section 2D states as follows:

The objects of this Act are:

• a) to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and
• b) to facilitate the use of arbitration agreements made in relation to international trade and commerce; and
• c) to facilitate  the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and
• d) to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting; and
• e) to give effect to the UNCITRAL Model Law on International commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and
• f) to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of other States signed by Australia on 24 March 1975.

This section is to be considered in tandem with section 39 of the Act which states that a court must have regard to the objects of the Act when considering whether to enforce an arbitral award or exercising a power or performing a function outlined in section 39(1). As will be seen the effect of section 2D has been immediate with a string of pro-arbitration decisions following its inclusion.

Section 21: No opting out of the Model Law

Another important change introduced by the 2010 amendments to the International Arbitration Act is that parties may no longer opt out of the Model Law. The changes to section 21 of the Act make it clear that the Model law is to cover the field in respect of the conduct of international arbitration in Australia. This amendment was necessary in order to clarify the confusion that followed the decision of the Queensland Court of Appeal in Australian Granites Ltd v Eisenwerk Hensel Bayreuth Di-Ing BurkHardt GmbH[2001] 1 Qd R 461.  Pursuant to this case; a party could exclude the Model Law by choosing another set of procedural rules, such as those of the ICC. Section 21 of the Arbitration Act now eliminates the possibility of either an express or implied opting-out of the International Arbitration Act.

Section 8: Enforcement of awards

Section 8(1) states that subject to this part, a foreign award is binding by virtue of this Act for all purposes on the parties to the arbitration agreement in pursuance of which it was made while section 8(2) and (3) state that a foreign award is to be enforced by a State Court or the Federal Court as if the award was a judgment of that Court.

The Amendment Act also introduced section 8(3A) into the International Arbitration Act which makes clear that the court has no residual discretion to refuse the enforcement of an arbitral award on any grounds other than those set out in sections 8(5) and 8(7) of the Act (which reflect the grounds set out in Article 36 of the Model Law). This amendment was made in response to the decision of the Queensland Supreme Court in Resort Condominiums Inc v Bolwell [1985] 1 Qd R 406 where it was held that a court retains discretion to refuse to enforce a foreign arbitral wards even if none of the grounds in section 8 are made out.

The procedure that will be followed by Australian courts in relation to an application for the enforcement of an award involves a two stage process.  The process requires the party seeking to enforce the award to discharge the preliminary burden of establishing the elements of section 8(1), namely that the applicant and defendant are parties to the arbitration agreement. Section 9(1) assists the applicant in this regard by providing that the applicant is required produce both a certified copy of the award and the agreement to the court and that such documents are ‘prima facie evidence’ of this fact.  Once the threshold legal burden in section 8(1) has been satisfied, the respondent may only resist enforcement of the award on one of the grounds set out in sections 8(5) and (7).

Prior to the 2010 Amendments, section 8(7) of the Act provided that a court may refuse to enforce an award where to enforce would be contrary to public policy, without defining the expression ‘public policy’. Section 8(7A) now gives some guidance providing that the enforcement of an award will be contrary to public policy if the making of the award is affected by fraud or corruption or a breach of the rules of natural justice occurred in the connection with the making of an award.

The Castel case

The recent decisions of Traxys Europe Sa v Balaji Coke Industry PVT Ltd [2012] FCA 276 (No 2)(Traxys)  and Castel Elctronics Pty Ltd TCL Air Conditioner (Zhongshan) Co Ltd (Castel)[2012] FCA 2124also illuminate the meaning of the phrase public policy.In Castel, the parties had agreed to arbitration in Australia. Castel was successful and TCL sought to resist enforcement of the award. Before the Federal Court, TCL argued that the arbitral award delivered against it should be set aside on the grounds of public policy because of alleged breaches of the rules of natural justice. In refusing to set aside the award the court outlined a number of general principles in relation to public policy in the International Arbitration Act.

The Court considered that regard must be had to the objects of the International Arbitration Act set out in section 2D, read in conjunction with section 39.  These provisions indicate that the discretion to set aside an award or refuse to enforce on the grounds of public policy should be cautiously applied.  The Court also regard to a number of decisions made in other Convention countries and noted that generally a narrow and restrictive approach to the scope of public policy had been adopted. Murphy J noted that an ‘offence to fundamental notions of fairness and justice’ is required before a court may set aside an award on the ground of public policy. This is consistent with the decision in Traxys Europe Sa v Balaji Coke Industry PVT Ltd (No 2).

In a subsequent Appeal by TCL to the High Court of Australia, TCL sought to argue that the International Arbitration Act undermined the integrity of the Federal Court of Australia by not allowing the court to consider an error on the face of the award and consequently conferred judicial power on the arbitral tribunal because enforcement provision of the Act make an arbitral award final and determinative.  The High Court examined the intent of the Model Law as ascertained by an analysis of the working papers of the UNCITRAL working group. This showed that the misapplication (as distinct to the non-application) of the rules of law chosen by the parties does not amount to an excess of power leading to the nullification of an arbitral award.

Further, article 28 of the Model Law when read in line with articles 35 and 36 provide that there is no ground to refuse recognition or enforcement of an arbitral award for error of law. In rejecting TCL’s submission the High Court confirmed that the arbitral award may be validly enforced even if it contains errors of law. Reaffirming the finality of the arbitral award.

Interplay of the International Arbitration Act and State Commercial Arbitration Acts

Prior to the 2010 amendments, there was a suggestion that an application for enforcement of a foreign award had to be made having regard to the applicable State or Territory legislation (see American Diagnostica Inc v Gradipore(1998) 44 NSWLR 312) rather that the International Arbitration Act. With the amendments to the Act, this suggestion has now been removed.

Confidentiality

In Esso v Plowman it has held that there was no implied term imposing a general duty of confidence has been replaced by a statutory duty of confidence contained in section 23C(1) of the International Arbitration Act.

Anti-suit injunction and freezing orders

It is part of Australian law that an anti-suit injunction may be granted against a person who, in breach of an arbitration agreement, commences judicial proceedings in some other jurisdiction.Australian Courts will also stay their own proceedings where proceedings are brought in contravention of an arbitration agreement.
Australian Courts also make freezing orders over assets of the award debtor.  Such orders are typically made on an ex parte basis before the award debtor is alerted that enforcement action is taking place in Australia.
In ENRC Marketing AG v OJSC ‘Magnitogorsk Metallurgical Kombinant [2011] FCA 1371  freezing orders were made against OJSC ‘Magnitogorsk Metallurgical Kombinant ( a company incorporated in Russia) and MMK-Mining Management S.A. (a company incorporated in Luxembourg) in relation to assets held by those companies in Australia.  Freezing orders were also made in Traxys Europe SA v Balaji Coke Indsutry PVt Ltd (No 2).

Arbitration and Charterparties

Dampskibsseiskabet Norden A/s v Gladstone Civil Pty Ltd [2013] FCAFC 107  concerned an arbitration clause under a voyage charterparty pursuant to which the shipowners had two arbitral awards made in their favour. At first instance the charterer’s were successful in having the awards set aside on the basis that the arbitration clause was of no effect by reason of section 11 of the Carriage of Goods by Sea Act 1991 (Cth), which renders ineffective any agreement which purports to preclude or limit the jurisdiction of an Australian Court in respect of a ‘sea carriage document’. On Appeal, the Full Court of the Federal Court of Australia held that in light of section 2D of the International Arbitration Act, Parliament could not have intended that ‘agreements for international arbitration in voyage or other charter parties would be deprived of force or effect unless the arbitration occurred in Australia’ and held that a voyage chaterparty was not a ‘sea carriage document’ within the meaning of section 11.

As over 10 per cent of the world’s trade by volume comes into Australia or leaves by sea this decision will provide great comfort to charterer’s and shipowners alike.

Conclusion

The amendments introduced by the Amendment Act maximize the attractiveness of Australia as a forum for international arbitration. Parties who chose to have their disputes resolved through arbitration, or who choose to enforce a foreign arbitral award in Australia can be assured that the country’s judicial system is stable, predictable and supportive of arbitration.

Russell Thirgood is the Head of Arbitration and partner of McCullough Robertson Lawyers. Lawyers Monthly awarded McCullough Robertson the 2013 prize for Best Arbitration and Litigation Law Firm – Australia.  McCullough Robertson Lawyers is independent and not aligned to any global law firm.The author gratefully acknowledges the assistance in the preparation of this paper by Erin Lewis, research clerk of McCullough Robertson Lawyers.