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Peter Megens
Partner
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On 25 November 2009, the Federal Attorney-General introduced the International Arbitration Amendments Bill 2009 (Cwlth) (the Bill) into the House of Representatives. The Bill proposes a series of amendments to the International Arbitration Act 1974 (Cwlth) (the IAA), which is the legislation that gives effect to Australia’s obligations under the New York Convention of 1958 and adopts the UNCITRAL Model Law of 1985. The IAA regulates international arbitration in Australia, dealing with matters including:
- the enforcement of international arbitration agreements
- the enforcement of international arbitral awards, and
- the role of Australian courts in support of international arbitration.
In its present form, the Bill is the most significant reform to international arbitration in Australia since the IAA became effective. In the second reading speech to the Commonwealth Parliament, the Attorney-General stated that the Bill will ensure the IAA remains at the forefront of international arbitration practice. The Bill includes the following proposed amendments.
Application of the UNCITRAL Model Law
In 2006, the UNCITRAL Model Law was updated for the first time since 1985. Except in relation to ex parte orders, the Bill incorporates the updated Model Law within the IAA. Importantly, this means that temporary means of protection known as “interim measures” will be recognised as binding and will be enforced by Australian courts.
Further, the Bill attempts to ensure that the UNCITRAL Model Law “covers the field” of international commercial arbitration in Australia. The existing section 21 of the IAA allows parties to opt out of applying the UNCITRAL Model Law and to resolve their dispute under a different arbitral law. This has created uncertainty as to the applicable rules and laws for international arbitrations conducted in Australia, most notably in Australian Granites Limited v Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardt GmbH [2001] 1 Qd R 461 where the adoption of institutional arbitration rules was held to exclude the application of the Model Law. The Bill repeals the existing section 21 and proposes a new section which clarifies that parties are unable to opt out of the Model Law in any circumstance.
Interpretation of the IAA
The Bill provides further guidance on interpreting the IAA. Proposed section 2D sets out the objects of the IAA, including the facilitation of trade and commerce, of arbitration agreements, and of recognition and enforcement of arbitral awards. Proposed section 39 requires courts to have regard to these objects when performing functions under the UNCITRAL Model Law, as well as to arbitration’s efficient, impartial, enforceable and timely nature.
The Bill confines the circumstances in which courts can refuse to recognise and enforce foreign arbitral awards. The courts would no longer be able to apply the laws of the States and Territories when enforcing foreign awards (subsection 8(2)). Proposed subsection 8(3A) limits courts’ discretion to refuse to enforce a foreign award to the circumstances in subsections 8(5) and 8(7).
It is hoped that these amendments provide more certainty and consistency with respect to international arbitrations in Australia, strengthening confidence in the jurisdiction from overseas.
Concurrent jurisdiction of the Federal Court
The IAA currently grants exclusive first-instance jurisdiction to the State and Territory Supreme Courts to exercise judicial functions under the UNCITRAL Model Law. The Attorney-General’s review of the IAA, which led to the development of the Bill, considered extensively whether to confer exclusive jurisdiction upon the Federal Court. Ultimately the Government has decided not to amend section 18 of the IAA in this way. The Federal Court will instead exercise jurisdiction which is concurrent to the jurisdiction of the State and Territory Supreme Courts. Parties would be able to apply directly to the Federal Court in respect of matters arising under the IAA, but the Supreme Courts retain jurisdiction to hear the same matters.
The Government has foreshadowed that specialist international arbitration lists will be developed in the State and Territory Supreme Courts and in the Federal Court, in order to concentrate the expertise of those Courts. It remains to be seen whether these lists will sufficiently improve the consistency of judicial decision-making with respect to the IAA.
What this means for you
The Bill aims to make Australia a more attractive destination to host international commercial arbitrations. Successful reform will encourage parties to include arbitration clauses in cross-border contracts which name Australia as the seat for arbitration. This would have implications for the wider Australian business community, as an increase in arbitral proceedings would have flow-on effects for the wider economy.
Reform of the IAA is also provoking reform to domestic arbitration legislation. State and Territory legislatures will soon introduce bills designed to improve perceptions of arbitration as a viable alternative to litigation within Australia’s legal and business communities.
Although the Bill has not yet been passed in the House of Representatives, it appears likely that the Opposition will support the amendments.
Authors
Peter Megens, Partner
Beth Cubitt, Senior Associate
Leading arbitrator, Neil Kaplan CBE QC SBS, has joined Mallesons Stephen Jaques as an International Arbitration Adviser.
The appointment is effective from 5 November 2009 and Mr Kaplan will be based in Mallesons’ Hong Kong office.
Mr Kaplan has more than 40 years' experience in dispute resolution, including a practice at the London Bar, as a government lawyer in Hong Kong, practice as a Queens Counsel in Hong Kong and as the judge in charge of the Construction and Arbitration list of the Hong Kong High Court. During the last 14 years he has solely performed the role of international arbitrator.
In addition, Mr Kaplan is currently a Council member of the International Committee for Commercial Arbitration (ICCA) and the Australian Centre for International Arbitration (ACICA). He was previously President of the Chartered Institute of Arbitrators, Chair of the then Hong Kong Branch of the Chartered Institute of Arbitrators and Chairman of the Hong Kong International Arbitration Centre (1991-2004).
In making the announcement, Mallesons’ Chief Executive Partner, Robert Milliner, said: “Neil will make a valuable contribution to our international arbitration team, bringing with him years of experience in this field, especially in the Asia Pacific Region. We are delighted to welcome him to Mallesons.”
Mr Kaplan said: “I am looking forward to my new role and joining a superb team, including [Hong Kong partners] Paul Starr and David Bateson, as well as [Australian based partners] Peter Megens and Max Bonnell.”
Mallesons is the only Australian-based firm named in Global Arbitration Review's 2008 list of the world's leading 100 arbitration firms. For further information about the firm's international arbitration practice, please refer to the following link: http://www.mallesons.com/expertise/international_arbitration/7141112W.htm
Authors
David Bateson, Partner
Paul Starr, Partner
Introduction
The enforceability of arbitrations conducted by foreign arbitral institutions in the People’s Republic of China (PRC) has long been uncertain. The prevailing view amongst practitioners has been that PRC arbitration law only recognises arbitral awards which are made in the PRC if they have been administered by one of the PRC’s arbitration commissions (such as the China International Economic and Trade Arbitration Commission (CIETAC)). A corollary of this is that awards by foreign arbitral institutions (such as the International Chamber of Commerce (ICC)) will not be enforceable.
This position was challenged in April 2009 when the Ningbo Intermediate People’s Court (Ningbo Court) recognised and enforced an ICC award which had been made in Beijing, marking the first time that a reported decision of a PRC court had enforced the award of a foreign arbitral institution in the PRC.
The ICC arbitration
The initial dispute involved a claim by a Swiss company (Claimant) against a Chinese company (Respondent) for an alleged breach of contract. The contract provided for the submission of disputes to the Chinese branch of the ICC (ICC China) for arbitration. ICC China accepted the arbitration and appointed a single Singaporean arbitrator to adjudicate the case, who found in favour of the Claimant and awarded damages in excess of US$230,000.
Enforcement of the ICC award
The Claimant applied to the Ningbo Court for recognition and enforcement of the ICC award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1985 (New York Convention), to which the PRC was a signatory. The Respondent challenged the enforcement proceedings on the grounds that since the award was not made by one of the PRC’s arbitration commissions, it could not be recognised under PRC law.
The Ningbo Court found for the Claimant by characterising the ICC award as a “non-domestic” award within the meaning of Article I(1) of the New York Convention, which states that the Convention applies “to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought”. This meant that the ICC award could be recognised and enforced in the PRC in accordance with the New York Convention. However, the Ningbo Court’s ruling contrasts with previous rulings by PRC courts, including one in 2004 which held that arbitration agreements providing for ICC arbitration were invalid.
Acknowledgement of the judgment is currently pending before the Supreme People’s Court, which must occur before the judgment can take effect.
Assessment of the Ningbo Court’s ruling
The Ningbo Court’s decision to classify the “nationality” of the ICC award as “non-domestic”, despite the fact that it was made within the PRC, is controversial. The general view under international law is that the “seat” of the arbitration is the key factor in determining nationality. Since the seat of the ICC award was Beijing, it would naturally follow that the award had PRC nationality and was therefore outside the scope of the New York Convention.
On the other hand, PRC courts have often characterised the nationality of arbitral awards on the basis of the country in which the arbitral institution was established. Since the ICC was established in France, this approach would classify the ICC award as “non-domestic” and therefore within the ambit of the New York Convention.
However, even if the Ningbo Court was correct in classifying the ICC award as “non-domestic”, there are strong arguments to suggest that non-domestic awards are nevertheless unenforceable in the PRC. This is due to the PRC’s “reciprocity reservation” under the New York Convention, whereby the PRC has declared that it will only apply the Convention to the recognition and enforcement of awards which are made in the territory of another contracting state. Many commentators have interpreted this to mean that the PRC is not under an obligation to enforce “non-domestic” awards.
Conclusion
While the Ningbo Court’s decision has been welcomed as a positive development in a country which has traditionally adopted a hostile position towards foreign arbitral institutions within its territory, there are questions regarding the validity of the court’s legal reasoning. Furthermore, the Ningbo Court is only an intermediate court within the PRC court hierarchy, and the decision may therefore not be followed by other PRC courts in the future.
Until the status of arbitral awards by foreign institutions in the PRC has been clarified beyond doubt (whether by legislative amendment or further judicial consideration by superior courts), parties seeking to arbitrate in the PRC would be advised to continue using recognised PRC arbitration commissions such as CIETAC.
Author
Philip Devenish, Solicitor
Parties contracting across borders and jurisdictions will often include arbitration clauses in commercial agreements and may also include “exclusive jurisdiction” or “choice of law” clauses to agree a legal basis for any arbitration and, if necessary, court proceedings. Nicola illustrates why such clauses must be carefully drafted to ensure that clauses broadly capture all claims which may arise out of or relate to the relevant commercial dealing so that all are referable to arbitration.
In Nicola, the plaintiffs, based in New South Wales, purchased a franchise business from the defendants, who were incorporated in Florida in the United States. The plaintiffs claimed for breaches of the franchise agreement, including breaches of the Trade Practices Act 1974 (Cwlth) (TPA), and brought proceedings in the Federal Court.
However, the parties’ agreement contained an arbitration clause providing that “any claim, controversy or dispute arising out of or relating to Franchisee’s operation of the Frachised business” was to be dealt with by arbitration and included provisions to compel the parties to arbitrate in preference to litigation. Further, the agreement contained an exclusive jurisdiction clause submitting to the law of Florida and that any matter which, as a matter of law or public policy, was not capable of determination by arbitration was to be brought within the State of Florida. Accordingly, the defendants applied to stay the Federal Court proceedings, and were ultimately successful.
There are three important points which practitioners should draw from Justice Perram’s decision:
- The drafting of the arbitration clause is critical. Perram J held that the question of whether a claim or dispute was “arising out of or related to the Franchisee’s operation of the Franchised business” was to be considered on a practical, not theoretical, level by looking at the claims made and the nexus between those claims and the operation of the business. Some claims were held not to have sufficient nexus and were therefore not referable to arbitration
- Merely alleging breach of a law relating to competition generally (such as the TPA) will not render a matter unsuitable for arbitration on public policy grounds. To do so the claims must relate to “control or abuses of market power”, and
- Courts will give great weight to exclusive jurisdiction clauses, and will ordinarily stay proceedings commenced in defiance of such clauses unless there is a “strong case” as to why the relevant court should hear the matter.
Author
Tim Hall, Solicitor
Application of Proportionate Liability Legislation to Commercial Arbitration in Australia - Acquagenics Pty Ltd v Break O’Day Council (No 2) [2009] TASSC 89 (“Acquagenics”)
Proportionate liability legislation exists in all State and Federal jurisdictions and operates in broad terms to limit the liability of concurrent wrongdoers in certain actions to the amount which a court considers just.
Academic and practitioner commentary had suggested that contracting parties could seek to avoid the application of proportionate liability legislation by referring any dispute to commercial arbitration rather than resorting to litigation.
The decision of the Tasmanian Supreme Court in Acquagenics is the first time that a Superior Court in Australia has looked at the issues around whether an arbitrator is a “court” or “tribunal” for the purposes of proportionate liability legislation and is thereby bound to take account of that legislation on the conduct of the arbitration. The defendant in Acquagenics was seeking a stay of court proceedings in order than an arbitration could proceed in accordance with the dispute resolution clause in the contract between the parties.
Interestingly, Blow J avoided the definitional debate about whether “tribunal” included an arbitrator. Instead he held that an arbitrator would normally be required to apply proportionate liability legislation to an arbitration by reason of an implied term in any contract providing for resolution of disputes by arbitration. The implied term would be to the effect that the arbitrator would have the same power to grant relief to an applicant as a court of law having jurisdiction to determine the same dispute.
His Honour went on to say that the implied term had the further effect that “when a claimant’s damages would have been reduced by a court pursuant to proportionate liability legislation, they must be similarly reduced by an arbitrator” [at para 24].
Adopting this reasoning, the Court rejected the plaintiff’s argument that it was inappropriate to stay the proceedings and allow the matter to be referred to arbitration on the basis that a court could offer relief not available in an arbitration. The Court accordingly allowed the stay of proceedings and the matter was allowed to proceed to arbitration.
It will be interesting to see if the implied term reasoning is adopted in other Australian jurisdictions when similar issues come up. In those jurisdictions where contracting out of proportionate liability legislation is permissible (NSW, WA and Tasmania) it should be possible for a contracting party to expressly provide that the arbitrator’s power does not extend to granting relief under proportionate liability legislation.
Author
Mark Darian-Smith, Partner
The Federal Justice System Amendment (Efficiency Measures) Bill (No. 1) 2008 (the Bill) aims to improve the efficiency with respect to international arbitrations in Australia by expanding and clarifying the jurisdiction of the Federal Court of Australia under the International Arbitration Act 1974 (Cth) (the Act). Having received Senate approval on 26 October 2009, the Bill (subject to receiving Royal Assent) will streamline the process of enforcement of foreign arbitral awards in Australia and will make it easier for parties to apply for a single order in the Federal Court in connection with an arbitration occurring within Australia.
The Bill amends the Act by:
- specifically including the Federal Court within the definition of “Court” for the purposes of the Act
- enabling a foreign award, with the leave of the Federal Court, to be enforced in the Federal Court as if the award had been made by the Federal Court
- providing concurrent jurisdiction to the Federal Court with regard to the enforcement of foreign arbitral awards in Australia.
What this means for you
With arbitration increasingly becoming the preferred forum for international commercial disputes, it is clear that this form of dispute resolution has its advantages for parties both in terms of efficiency and cost. However this efficiency can be impeded if a party who receives a foreign arbitral award has to undergo several court processes in order to enforce that award in a number of Australian states and/or territories. Similarly, if a court order is sought by a party in relation to an arbitration spanning several Supreme Court jurisdictions, applications will need to be made to each state Supreme Court. Notwithstanding the lack of efficiency in this process, there have been situations where Supreme Courts within Australia have arrived at different, and sometimes unique, views when interpreting the Act. The amendments outlined above should alleviate these problems and the resulting potential for improved efficiency and lower costs will make Australia a more attractive location for the conduct of international arbitrations.
Author
Matthew Taylor, Solicitor