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Putting Australia on the arbitration map

Feature Articles

Cite as: Cite as: March 2012 86 (03) LIJ, p.36

Significant amendments to the International Arbitration Act 1974 (Cth) and associated state laws have the potential to make Australia more attractive as a forum for arbitrating international commercial agreements.

By Robert Kovacs

On 6 July 2010 the International Arbitration Amendment Act 2010 (Cth) (Amendment Act) came into effect, amending the International Arbitration Act 1974 (Cth) (IAA). When announcing a review of the IAA the federal Attorney-General’s Department (AGD) expressed its hope that a revised IAA would make Australia a more attractive venue for conducting international commercial arbitration, especially within the Asia-Pacific region.1 In a speech delivered at the same time, the Attorney-General said that the government was committed to developing Australia as a regional hub for international commercial dispute resolution.2

International arbitration in Australia is regulated by the IAA, which implements Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) and gives force of law to the UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law) as the primary arbitral law that governs the conduct of international arbitration taking place in Australia. The Model Law is a template national law to regulate commercial arbitration and reflects an international consensus on key aspects of arbitration practice. It has been adopted (or used as a template) in nearly 60 countries, including many countries in the Asia-Pacific region (notably Hong Kong and Singapore). The IAA also implements Australia’s obligations under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Investment Convention).

On 17 November 2011, the Commercial Arbitration Act 2011 (Vic) (CAA) came into effect. The new CAA follows an agreement by all states to repeal the previous uniform commercial arbitration Acts and to replace them with a new uniform law which closely follows the Model Law.

This article provides a brief overview of the most significant recent changes to commercial arbitration legislation, particularly the changes to the IAA, and what these changes mean for parties and legal counsel engaged in commercial arbitration in Australia under the new regime. It appears that these changes will improve the operation of commercial arbitration in Australia and may help promote Australia as a venue for international arbitration. This article does not propose to exhaustively examine all the provisions of the IAA or the CAA. Accordingly, a more detailed study of the IAA and CAA is required when providing any legal advice.

SUMMARY OF SIGNIFICANT AMENDMENTS TO THE IAA

Creates an exclusive law governing international arbitration

The IAA is now the exclusive law governing international commercial arbitration in Australia, removing the previous ability of parties to an arbitration agreement to nominate an alternative arbitral law (i.e. the procedural law governing the arbitration). Section 21 states: “If the Model Law applies to an arbitration, the law of a State or Territory relating to arbitration does not apply to that arbitration”.3

This amendment is intended to overcome the confusion that was created by the old s21, which allowed the parties to an arbitration agreement to resolve their disputes under an arbitral law other than the Model Law (such as one of the Commercial Arbitration Acts of a state or territory). The judicial interpretation of the old s21 of the IAA caused further confusion, particularly the interpretation adopted by the Queensland Court of Appeal in Eisenwerk v Australian Granites Ltd.4 The Court of Appeal in that case held that by adopting the International Chamber of Commerce Rules, the parties had opted out of the Model Law. This interpretation was widely criticised and seen as unsatisfactory as it failed to understand the distinction between procedural law of a country regulating international arbitration and the procedural rules that regulate the internal procedure of an arbitration.

Clarifies the “writing requirement”

The amendments to the IAA aim to clarify the requirement that an arbitration agreement must be in writing under Article II of the New York Convention.5 A new sub-s3(4) clarifies that an agreement in writing is to be given an expansive interpretation that takes into account modern means of communication. The definition adopted is based on the definition of agreement in writing contained in Option 1 of Article 7 of the Model Law as amended in 2006.

In addition, a new sub-s3(5) has been included in the IAA which clarifies that “a reference in a contract to any document containing an arbitration clause is an arbitration agreement provided that the reference is such as to make the clause part of the contract”.

Limits the grounds to refuse enforcement

Sub-sections 8(5) and 8(7) of the IAA set out limited grounds on which a court may refuse to enforce an arbitral award. These grounds mirror those in Article V of the New York Convention. A new sub-s8(3A) clarifies that a court has no residual discretion to refuse enforcement on other grounds.

This amendment seeks to address concerns that courts do not always treat the grounds for refusal of enforcement of arbitral awards in sub-s8(5) and 8(7) as exhaustive. For example, in Resort Condominiums Inc v Bolwell and Another,6 the Supreme Court of Queensland found that the court retains a discretion to refuse to enforce a foreign arbitral award even if none of the grounds in s8 of the IAA are made out.

Clarifies the circumstances where the enforcement of a foreign award would be contrary to public policy

Under sub-s8(7) of the IAA, a court may refuse to enforce an award where to do so would be contrary to public policy. The IAA now clarifies the meaning of public policy for the purposes of refusing the enforcement of an award in sub-s8(7A) (adopting the definition in s19), which provides that the enforcement of a foreign award would be contrary to public policy if:

  • the making of the award was induced or affected by fraud or corruption; or
  • a breach of the rules of natural justice occurred in connection with the making of the award: s35(2).
Provides for direct enforcement of foreign arbitral awards

Under the IAA, a party seeking to enforce a foreign arbitral award is no longer required to seek the leave of the court to do so, and a foreign award may be enforced as if the award was a judgment of an Australian court: ss8(3), 35(4). A party may also enforce an award under the Investment Convention, with leave of the court, as if the award were a judgment or order of the court: s18(3).

Provides the Federal Court with jurisdiction

The IAA now provides that arbitral awards can be enforced in the Federal Court,7 and the Federal Court is competent to perform functions referred to in the Model Law: s18A.

Enhances court powers to control the proceedings and protect foreign awards

The powers of a court to control the proceedings and protect foreign awards have been enhanced as a result of the amendments to the IAA. Where the application for the setting aside or suspension of the award is not being pursued in good faith; with reasonable diligence; has been withdrawn or dismissed; or the continued adjournment of the proceedings is, for any reason, not justified, a court may now make certain orders that are appropriate in the circumstances: s23.

Clarifies the interpretation of the Model Law

The amendments to the IAA seek to clarify certain interpretations of provisions of the Model Law that are incorporated into the IAA. These interpretations of the Model Law provisions are consistent with interpretations provided elsewhere in the IAA. For example, s16 provides that “arbitration agreement” has the same meaning as in Option I of Article 7 of the Model Law as amended in 2006, which is consistent with the definition in sub-s3(4): sub-ss23A(1), A(3).

Clarifies the meaning of a full opportunity to present a party’s case

A new s18C was inserted into the IAA and provides that a party is taken to have been given a “full opportunity” to present its case if the party is given a “reasonable opportunity” to present the case. This clarification is intended to give arbitral tribunals a wider degree of flexibility in controlling arbitral proceedings and is consistent with approaches taken in jurisdictions overseas, including New Zealand, Singapore, Mauritius and the United Kingdom.

Clarifies test for impartiality or independence of arbitrators

The IAA clarifies the circumstances giving rise to “justifiable doubts as to the impartiality or independence” of an arbitrator or a potential arbitrator for the purposes of Article 12 of the Model Law. The IAA adopts a “real danger of bias” test (s15(1)), as set out by the House of Lords in R v Gough.8

Gives parties the option to “opt in” or “opt out” of certain provisions

Division 3 of Part II of the IAA provides for a number of provisions that supplement the Model Law and apply on an opt-in or opt-out basis. That is, some provisions only apply if parties to an arbitration agreement expressly provide that the provision applies (for example, in relation to confidential information), whereas other provisions apply unless the parties choose to exclude them (for example, court support in the form of subpoenas).

Enhances court powers to support the arbitral process

Under the IAA, a party may apply, with the permission of the arbitral tribunal, to a court to issue a subpoena requiring a person to do either or both of the following:

  • to attend for examination before the arbitral tribunal;
  • to produce to the arbitral tribunal the documents specified in the subpoena: s28.

A party may also apply to a court for an order to compel a person to attend, produce a document or do the relevant thing required of them by an arbitral tribunal if that person fails to assist the tribunal: s23K. The IAA does not adopt the Model Law provision enabling a party to obtain preliminary orders from the arbitral tribunal on an ex parte basis.

Clarifies the use of confidential information

The new IAA expands the definition of confidential information to cover all information that relates to the proceedings or to an award made in the proceedings: s26. These provisions apply on an opt-in basis. Sections 23C–23G specify the circumstances in which disclosure of confidential information is allowed.

Expands the immunity of arbitrators and appointing authorities

The new IAA broadens the immunity of arbitrators and appointing authorities and provides that arbitrators are not liable for anything done, or omitted to be done, in good faith in their capacity as an arbitrator. This immunity also extends to an entity that appoints, or fails, or refuses to appoint, a person as arbitrator: s28.

Enhances the powers of arbitrators

Arbitrators now have increased powers to conduct the arbitral proceeding (unless the parties agree otherwise). Arbitrators can:

  • order a party to give security for costs (s23K);
  • order interest to be paid, including compound interest, on an amount in an award if not paid by a certain date (s26); and
  • limit the costs of an arbitration to a specified amount: (s27(2)(d).9
Specifies matters to which courts must have regard

Part V of the IAA includes matters to which courts must have regard when exercising powers or functions or interpreting provisions relevant to the IAA. These matters include:

  • the objects of the IAA;
  • that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and
  • that awards are intended to provide certainty and finality.

DOMESTIC ARBITRATION UNDER THE REVISED CAA

The introduction of a revised CAA in Victoria (with similar legislation being introduced in other states and territories) brings the regulation of domestic arbitration into line with international arbitration and international practice. The CAA provides that it is to be given an interpretation consistent with the commonwealth IAA, seeking to enhance uniformity between state and commonwealth legislation: s2A(1). The CAA now adopts, with some additional provisions and amendments, the Model Law to regulate domestic arbitration.

The CAA also contains a number of additional provisions to those in the Model Law, aimed at supporting the arbitration process and providing users with a choice of opt-in provisions. These include provisions relating to: obtaining assistance from the Supreme Court (or another court nominated by the parties) (s2); the power of arbitrators and the Supreme Court to order interim measures (Pt 4A); obligations on the parties to assist the proper and expeditious conduct of the arbitral proceedings (s24B); the consolidation of arbitral proceedings (s27C); arbitrators acting as mediators (s27D); the disclosure of confidential information (ss27E–27L); the awarding of interest and costs and the option for parties to opt in to judicial review of domestic arbitral awards on the grounds of error of law (s34A).

RECENT CASE LAW INTERPRETING THE IAA

In recent decisions regarding the enforcement of foreign arbitral awards, Australian courts have clarified a number of issues for parties seeking to enforce, or resist enforcement of, foreign arbitral awards in Australia under the revised IAA.

IMC Aviation Solutions Pty Ltd v Altain Khuder LLC

In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC,10 the Victorian Court of Appeal on 22 August 2011 refused to enforce a Mongolian award under s8 of the IAA, overturning a decision of the Supreme Court of Victoria (Altain Khuder LLC v IMC Mining Inc & Anor).11 An arbitration took place between Altain Khuder LLC and IMC Mining Inc (IMC) in Mongolia, with an award rendered on 15 September 2009. The arbitral tribunal made orders against IMC, and its related Australian entity, IMC Mining Solutions Pty Ltd – now IMC Aviation Solutions Pty Ltd (IMC Aviation). IMC Aviation was not a party to the contract that contained the arbitration agreement and did not participate in the arbitration.

The majority (Hansen JA and Kyrou AJA) decided:

  • to enforce a foreign award, the applicant must establish, prima facie, that the award debtor and creditor are parties to the arbitration agreement in pursuance of which the award was made;
  • a court considering whether to enforce an award has the power to determine whether the arbitral tribunal had jurisdiction over the parties, following English authority in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan;12
  • the onus for establishing the defences in ss8(5) and (7) of the IAA is simply the ordinary civil standard of “balance of probabilities”, not a “heavy” onus as held at first instance; and
  • indemnity costs will not be awarded merely as a result of unsuccessfully resisting enforcement of an award, departing from authority in Hong Kong and Singapore.
Uganda Telecom Pty Ltd v Hi Tech Telecom Pty Ltd

In Uganda Telecom Pty Ltd v Hi Tech Telecom Pty Ltd,13 in a judgment handed down on 22 February 2011, the Federal Court of Australia enforced an award dated 29 April 2009 made in Uganda pursuant to an arbitration agreement contained in a telecommunications contract between a Ugandan corporation and an Australian corporation.

In holding that the award was valid and making the appropriate orders for the enforcement of the award in Australia, Foster J referred to the matters to which the court must now have regard under the Act, including the objects of the Act. Foster J said that it is now clear, as a consequence of recent amendments, that Australian courts have no general discretion to refuse enforcement of a foreign award. Foster J also said that the amendments to the Act make it clear that Australian public policy does not provide a basis for reopening the merits of an arbitration and that the public policy exception should be narrowly interpreted.

CONCLUSION

The 2010 amendments to the IAA are a welcome improvement to the international arbitration law in Australia and should enhance the conduct of international arbitration in this country. Likewise, the adoption of the Model Law in the new CAA should help to facilitate more efficient resolution of disputes through domestic arbitration and improve the consistency of judicial interpretation between domestic and international commercial arbitration.

While it is still too early to conclude whether these amendments will achieve the expressed hopes of the AGD to make Australia a key centre for international arbitration in the region, the amendments to the IAA and CAA should go a long way towards improving commercial arbitration practice in Australia. The changes to the IAA and CAA will help make Australia a more attractive venue for the conduct of commercial arbitration in the region.




ROBERT KOVACS is a lawyer in the international arbitration group at Clayton Utz, doctoral candidate at the University of Geneva, Australian representative of the Australasian Forum for International Arbitration and a member of the LIV International Law Section Executive Committee. The views expressed in this article are those of the author alone.

1. Review of the International Arbitration Act 1974, discussion paper, November 2008, available at www.ag.gov.au/internationalarbitration.

2. See Attorney-General Robert McClelland, “Simply Resolving Disputes”, International Commercial Arbitration Conference: Making It Work for Business, available at http://www.ag.gov.au/.

3. Section numbers in the body of the article refer to the International Arbitration Act 1974 (Cth) unless otherwise specified.

4. [2001] 1 Qd R 461.

5. A copy of the New York Convention is available at www.uncitral.org/pdf/english/texts/arbitration/NY-conv/XXII_1_e.pdf.

6. [1995] 1 Qd R 406.

7. Option I provides that an arbitration agreement may be concluded orally, through conduct or other means, as long as its content is recorded in some form. Option I also provides for the use of electronic communications to conclude commercial arrangements.

8. [1993] AC 646.

9. Under s27(2A) if an arbitral tribunal intends to make a direction under paragraph 2(d), then it must give the parties to the arbitration agreement notice of that intention sufficiently in advance of the incurring of costs to which it relates, or the taking of any steps in the arbitral proceedings which may be affected by it, for the limit to be taken into account.

10. [2011] VSCA 248.

11. [2011] VSC 1.

12. [2011] 1 AC 763.

13. [2011] FCA 131.

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