Enforcement of arbitral awards the Australian approach
08 December 2021
08 December 2021
Earlier this year, the Australian Arbitration Report published by the Australian Centre for International Commercial Arbitration (ACICA) found that there was "an enormous amount of arbitration with an Australian connection, by virtue of involving Australian parties, Australian projects, or Australian legal or expert assistance." ACICA noted that there was over AUD$35 billion in dispute across 223 arbitrations with an Australian connection at the time of the Australian Arbitration Report. Justin Gleeson SC and Jonathon Redwood SC also commented in the Australian Arbitration Report that "Australia now stands out, amongst the arbitration seats and venues, as a stable liberal democracy committed to the rule of law and with an independent and supportive judiciary. These are advantages of a juridical seat that can no longer be taken for granted in the modern world."
Since the Australian Arbitration Report was published, there have been a number of decisions on the enforcement of arbitral awards in Australia that have been consistent with those findings and comments. The decisions have demonstrated that Australia remains "pro-arbitration" and is increasingly an attractive destination for international arbitration. However, not all decisions have enforced the relevant arbitral awards.
What is clear from these cases is that Australian courts will not adopt an unthinkingly pro-enforcement approach. Instead, they will insist on the fundamental internationally recognised requirements for the enforcement of arbitral awards.
In this update, we outline three of those decisions.
The Full Federal Court of Australia recently considered an appeal from a judgment enforcing an arbitral award under s 8(3) of the International Arbitration Act 1974 (Cth) (IAA). Hub Street contended that the award should not be enforced on the principal ground that the composition of the arbitral tribunal was not in accordance with the agreement of the parties as envisaged by s 8(5)(e) of the IAA: "the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place." Energy City's principal contention was that the appointment, having been made by the Qatari Court, must be regarded as valid under the law of the seat and that Hub Street's remedy was to challenge it there rather than resist enforcement in Australia.
The parties' agreement provided that the arbitral tribunal was to consist of three members, with one member to be appointed by each party and the third member to be mutually chosen by the first two members. Energy City did not send a notice to Hub Street to appoint one member of the arbitration committee. It instead requested that the Qatari Court appoint an arbitral tribunal of three members under Qatari law.
Stewart J (with whom Allsop CJ and Middleton J agreed) found that the Qatari Court had appointed the arbitral tribunal on the misapprehension that Energy City had sent a notice to Hub Street to appoint one member of the arbitral committee, and that Hub Street had failed to do so. In those circumstances, under Qatari law, the composition of the tribunal was not in accordance with the agreement of the parties. His Honour held that the basis to resist the enforcement of the award under s 8(5)(e) of the IAA was accordingly established.
His Honour then considered whether the award should be enforced as a matter of discretion. Stewart J observed that while the New York Convention had a pro-enforcement bias, there was no justification for concluding that there was either a broad-ranging or unlimited discretion to enforce, or that there was no discretion to enforce the arbitral award. In any event, his Honour considered that the composition of the arbitral tribunal in accordance with the parties' agreement "strikes at the very heart of the tribunal's jurisdiction", and that the failure give notice of the arbitration was equally fundamental. His Honour consequently refused to exercise the discretion to enforce the award.
While Stewart J was careful to emphasise the pro-enforcement bias of the New York Convention, this case is a relatively clear example of circumstances in which a party may resist enforcement of an arbitral award under the IAA, and that the Australian courts will strictly apply the requirements for the enforcement of an award under the IAA.
In Chevron, the Supreme Court of Western Australia was asked to intervene in an arbitration between Chevron and CBI.
The arbitration proceedings were bifurcated between liability and quantum and the bifurcation was recorded in procedural orders issued by the three member tribunal, with the issues of liability being addressed first. A hearing was conducted which dealt with liability, following which the tribunal made an interim award. The parties then proceeded to address issues of quantum and in the course of doing so, Chevron argued that CBI's submissions on quantum sought to re-open issues of liability. Chevron argued that as the first hearing addressed "all issues of liability", the interim award delivered by the tribunal meant that the tribunal no longer had jurisdiction to consider any further submissions on liability. Chevron argued that on liability issues, the tribunal was now functus officio.
The tribunal considered Chevron's arguments and in a 2 to 1 majority issued a second interim award that allowed CBI's submissions and found in favour of CBI. Chevron applied to the Supreme Court to have the second interim award set aside.
Martin J agreed with Chevron. His Honour made reference to s 5 of the Commercial Arbitration Act 2012 (WA) (CAA), which seeks to minimise curial intervention in arbitral proceedings, and the deference that courts are to afford to arbitral determinations: "In matters governed by this Act, no court must intervene except where so provided by this Act." However, Martin J ultimately found that CBI's case on quantum did seek to impermissibly re-open issues of liability. His Honour found because the parties' agreement to arbitrate contained the words "[a]ny Dispute shall be exclusively and finally settled as set forth hereafter", these words dictated the scope of the arbitrators' jurisdiction. The Court found that the second interim award was inconsistent with the finality required by the parties' agreement to arbitrate, and it was therefore set aside under s 34(2)(a)(iii) of the CAA.
This case, which is on appeal, highlights the Australian courts' "pro-arbitration" emphasis on the finality of arbitral awards, albeit that this may mean refusing to enforce any subsequent arbitral awards.
Australia's reputation as a pro-investment arbitration jurisdiction has been bolstered by the recent judgment of Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. in which the Full Federal Court recognised an investment arbitration award against Spain.
The Court considered whether Spain's accession to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) constituted a submission to the jurisdiction of the Federal Court, so as to extinguish foreign state immunity under s 10(1) of the Foreign States Immunities Act 1985 (Cth) (Immunities Act). The respondents had obtained an award against Spain under the ICSID Convention, an international treaty to which Spain and Australia are both parties. The respondents then applied to the Federal Court at first instance for orders, including that Spain pay it the amount of the award with interest. Spain contested the jurisdiction of the Federal Court under s 9 of the Immunities Act: "Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding." The primary judge accepted that Spain's accession to the ICSID Convention constituted an agreement by treaty to submit itself to the Federal Court's jurisdiction, and his Honour therefore rejected Spain's plea of foreign state immunity.
Perram J (with whom Allsop CJ and Moshinsky J agreed) held that Spain could not rely on foreign state immunity to resist the "recognition" of an arbitral award made under the provisions of the ICSID Convention. However, the appeal was allowed on the limited basis that the orders made in the first instance went beyond "recognition" of the award.
Allsop CJ observed on appeal that the matters the subject of the dispute were principally linguistic or semantic (although not unimportant). The Court was required to determine whether the "non-derogation" principle in Art 55 of the ICSID Convention preserved Spain's right to rely on foreign state immunity to resist the "recognition" of the arbitral award under Art 54(1) and Art 54(2) of the ICSID Convention: "Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution." Perram J held that the "non-derogation" principle in Art 55 could not be read as applicable to "recognition" because:
In a subsequent decision, the Full Federal Court made an order recognising the arbitral award. However, the Court also ordered that its "recognition" of the arbitral award should not be construed as derogating from the effect of any law relating to immunity of the respondent from execution.
While these decisions offer useful clarity with respect to the "recognition" of arbitral awards under the ICSID Convention against foreign states, the reasoning and subsequent orders suggest a pyrrhic victory for the respondents should Spain decline to satisfy the judgment and a further proceeding for "execution" be required.
Our previous update on the first instance decision of the Federal Court is available here.
The decisions outlined above are part of a substantial existing body of useful case law in Australia in relation to the enforcement of arbitral awards. The cases demonstrate that whilst Australia may be a "pro-arbitration" jurisdiction, this does not mean that Australian courts will always adopt an unthinkingly pro-enforcement approach. They also serve as a reminder that parties should consider the requirements for the enforcement of arbitral awards at all stages of an arbitration to ensure that any award will be capable of being enforced. These enforcement requirements may be applied strictly by the Australian courts, particularly where there are underlying deficiencies that go to the heart of arbitration such as the composition of the tribunal or the jurisdiction it has.
Authors: Georgia Quick, Partner; Matthew Blycha, Partner; Luke Carbon, Senior Associate; and Mariel Hoare, Senior Associate.