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Victorian Court of Appeal overturns Supreme Court’s decision and refuses to enforce Mongolian arbitral award

 

​On 22 August 2011 the Victorian Court of Appeal handed down its decision in the first appeal from an enforcement decision under the International Arbitration Act 1974 (Cth) (“Act”) since the amendments were made to that Act in July 2010. 

At first instance, Justice Croft had granted Altain Khuder LLC’s (“Altain Khuder”) ex parte application for enforcement of a Mongolian arbitral award in the sum of US $5,903,098.20 and an arbitration fee of US $50,257.70.  IMC Aviation Solutions Pty Ltd (“IMC”) applied to have the orders Justice Croft set aside pursuant to section 8 of the Act on the basis that it was not a party to the arbitration agreement.  Justice Croft dismissed the application and ordered that IMC pay Altain Khuder’s indemnity costs.  IMC appealed both Justice Croft’s decision concerning the enforceability of the arbitral award and the grant of indemnity costs.  For further information on the first instance decisions of Justice Croft, see the Q2 edition of the international arbitration update.

In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248, the Victorian Court of Appeal which was comprised of Warren CJ, Hansen JA and Kyrou AJA overturned Croft J’s decisions and set aside the orders for enforcement against IMC.  The Court of Appeal found that Croft J erred in enforcing the award against IMC as it was not apparent, on the face of the arbitration agreement, that IMC was a party to the agreement.  According to the Court, Croft J should have ordered that IMC be given notice of Altain Khuder’s application for enforcement of the award and that the application should have been heard inter partes.  Kyrou AJA and Hansen JA found that to invoke the Court’s jurisdiction to enforce a foreign arbitral award, an award creditor must establish on a prima facie basis that:

  1. an award has been made by a foreign arbitral tribunal granting relief to the award creditor against the award debtor;
  2. the award was made pursuant to an arbitration agreement; and
  3. the award creditor and the award debtor are parties to the arbitration agreement.

The Court found that Altain Khuder had not discharged their burden of proof and could not prima facie show that IMC was a party.

In setting aside Croft J’s decision and orders, the Court of Appeal departed from the approach taken by most foreign courts on the issue of whether an award debtor is a party to an agreement.  In many foreign jurisdictions the issue is not treated as a threshold issue for the award creditor, rather as a defence for the award debtor under the equivalent sections to section 8(5)(b) of the Act.