Arbitration Yearbook Australia

By: Leigh Duthie,1 Jo Delaney,2 Mia Livingstone Alé3 and Erika Williams4

A. Legislation, Trends and Tendencies

A.1 Legislation

In August and October 2015, important amendments were made to the International Arbitration Act 1974 (Cth) (IAA) to bring Australia in line with international practice and to strengthen Australia’s reputation as an arbitration-friendly jurisdiction.

Section 8 of the IAA was amended to permit the enforcement of foreign arbitral awards, regardless of whether or not the award was made in a state that is party to the New York Convention.

Section 22(2) of the IAA was amended to change the confidentiality provisions from “opt in” to “opt out.” This means that international arbitrations seated in Australia are confidential, unless the parties choose otherwise in their arbitration agreement. The confidentiality provisions are subject to certain public interest exceptions.

A.2 Trends and Tendencies

In 2015, Australia concluded negotiations on a free trade agreement with China. The China-Australia Free Trade Agreement entered into force on 20 December 2015.
Australia is one of the 12 countries participating in the Trans-Pacific Partnership (TPP). Negotiations for the TPP were concluded in October 2015. The text, which was released in November 2015, is still being finalized by the TPP States.

B. Cases

B.1 Fast-Track Arbitration

The benefits of an accelerated arbitration process and the ability of the Australian courts to efficiently enforce an arbitral award in urgent circumstances were demonstrated in Sauber Motorsport AG v. Giedo Van Der Garde BV & Ors.5 This case involved a dispute between Giedo van der Garde BV (“GVDG BV”), an entity established to manage the interests of race driver Giedo van der Garde, and Sauber Motorsport AG (“Sauber”). Sauber reneged on an agreement that the Dutch driver would drive for Sauber in 2015. The dispute was referred to arbitration in Switzerland. An emergency arbitrator issued an interim injunction restraining Sauber from taking any action that would deprive the Dutch driver of the opportunity to participate in the Formula One 2015 season. The parties then agreed on an accelerated timetable for the arbitration in order for a decision to be rendered before the commencement of the 2015 season on 15 March 2015. A partial award was issued on 2 March 2015, ordering Sauber to refrain from taking any action that would deprive the Dutch driver of his entitlement to participate in the 2015 Formula One season as one of Sauber’s two nominated race drivers.

On 5 March 2015, GVDG BV applied for the enforcement of the award in the Victorian Supreme Court. Sauber challenged this enforcement. The Supreme Court held a two-day hearing and issued a decision on 11 March 2015, six days after the application was made. The following day, the Court of Appeal granted leave for, and on the same day heard, an appeal of that decision.6 The court dismissed the appeal and upheld the enforcement of the award. Sauber was therefore required to refrain from acts that deprived van der Garde of his entitlement to compete in Formula One as Sauber’s nominated driver. Sauber’s application for the appeal to be held after the Australian Grand Prix was refused by the court, which noted that the interests of justice required that the appeal be heard before the race was held. Sauber indicated that it did not intend to comply with the court’s order. GVDG BV then filed contempt of court proceedings against Sauber, which were to be heard before a special sitting of the Supreme Court the day before the race. However, the parties reached a settlement, under which van der Garde agreed not to participate in the 15 March 2015 race. Although van der Garde did not participate in the race, the case demonstrates the capacity of the judiciary to process enforcement applications urgently where necessary.7

B.2 Enforcement of a Poorly Drafted Arbitration Agreement

The Australian courts will uphold arbitration agreements where there is a clear intention to refer disputes to arbitration, even if the arbitration clause is poorly drafted. In Robotunits Pty Ltd. v. Mennel,8 the Supreme Court of Victoria ordered a stay of proceedings and referred a dispute within the scope of the arbitration agreements to arbitration in circumstances where the agreements provided for arbitration in accordance with guidelines that did not exist. Taking this into account, the court made its orders conditional on the parties agreeing the arbitral seat and the rules of the arbitration and, in doing so, expressed a preliminary view on what the seat of the arbitration would probably be if the parties did not agree. If the parties were not able to reach agreement, they could apply to the court for further assistance.

B.3 Enforcement of Arbitral Awards

There have been many cases over the past year concerning the enforcement of foreign arbitral awards, particularly where enforcement has been challenged on the basis of a breach of natural justice. The courts have reiterated the principles on enforcement enunciated in the leading case of the Full Federal Court of Australia in TCL Air Conditioner (Zhongshan) Co. Ltd. v. Castel Electronics Pty Ltd.9 discussed last year, which provides that real unfairness and real practical injustice must be shown to establish a breach of natural justice, not just that the award contains errors of fact or law.10 Courts should not entertain a disguised attack on the factual findings or legal conclusions of an arbitrator dressed up as a complaint about natural justice. Unfairness will depend upon context and all the circumstances of the case.

In Aircraft Support Industries Pty Ltd. v. William Hare UAE LLC,11 the NSW Court of Appeal confirmed that the courts can partially enforce arbitral awards. If the portion of the award that is void is also capable of severance, in that it is clearly separable and divisible from the rest of the award, the rest of the award may be enforced. In this case, the court found that the determination of a certain claim by the Tribunal was void for breach of natural justice where a party was denied the opportunity to put forward submissions on that claim. However, in relation to the rest of the award, there was no breach of natural justice where the tribunal had failed to respond to mere assertions made by a party in relation to claims that were unsupported by evidence and seemingly abandoned at the close of the case.

Accordingly, the court held that the tribunal’s reasons in respect of those claims were adequate in the circumstances and, therefore, that part of the award was enforceable.

In dismissing an application to set aside an international arbitral award and proceeding to enforce it, the Federal Court of Australia (the FCA) in Hebei Jikai Industrial Group Co. Ltd. v. Martin12 stated that the principle of judicial restraint generally applies in relation to challenges to international commercial arbitration awards. Judicial restraint suggests both that arbitral awards should not be scrutinized by overzealous judicial review and that the discretion to set aside awards should be exercised only sparingly and only in clear cases. Ultimately, the court found that this was not such a case.

B.4 Challenge to Arbitrators

In Sino Dragon Trading Ltd. v. Noble Resources International Pty Ltd.,13 the FCA dismissed an application to challenge the appointment of two of three arbitrators, finding that the court did not have the power to determine the challenge. The parties had agreed to the UNCITRAL Arbitration Rules in their arbitration agreement. Articles 12 and 13 of those Rules contained a procedure to challenge the appointment of an arbitrator. Although the applicant sought to rely on Article 13(3) of the UNCITRAL Model Law (as implemented in Schedule 2 of the IAA), which prescribed the circumstances in which the court can decide on the challenge to an arbitrator, the court found that the time within which the applicant could elect for the challenge to be determined by the appointing authority under the UNCITRAL Arbitration Rules had not yet expired and, therefore, it had no power to determine the challenge under Article 13(3) of the Model Law. Further, the court held that there was no common law power upon which it could decide a challenge outside of Article 13(3) of the Model Law. In addition, the court found that the arbitrators had not failed to act without undue delay under Article 14 of the Model Law.

B.5 Production of Documents and Issue of Subpoenas

In Sino Dragon Trading Ltd. v. Noble Resources International Pty Ltd.,14 the FCA also dismissed an application for orders seeking the production of documents and the issue of subpoenas, which had been considered and refused by the tribunal.

The power of an Australian court to require a party to produce documents or issue subpoenas in support of an arbitration is contained in Sections 23 and 23A of the IAA. However, the court’s power is only actuated where the tribunal has given permission for the issue of the subpoenas and is premised upon providing assistance to the tribunal. Given that the tribunal had considered and refused to grant the procedural requests in question, the court held that it had no power to make the orders sought. The orders were not “interim measures” within the scope of Article 17J of the Model Law, which the court found did not expand the powers of the court for interfering in an arbitration and should only be exercised very sparingly. Further, Article 27 of the Model Law, which provides that a party may request court assistance in taking evidence, did not apply as it also requires that the tribunal seek assistance from the court or that a party proceed with the approval of the tribunal.

In Esposito Holdings Pty Ltd. v. UDP Holdings Pty Ltd.,15 the applicant had obtained the permission of the tribunal to apply to the court for the issue of subpoenas for documents from a party and nonparties for an arbitration under Section 23(1) of the IAA. In ordering the subpoenas, the Supreme Court of Victoria stated that its role was to provide assistance and support to the arbitral process and refrain from “second-guessing” the tribunal, which had already given permission for the applicant to obtain subpoenas. The court must, however, find that the subpoena is for a legitimate forensic purpose and, if it is for a document, that the document is apparently relevant, taking into account the difficulty of assessing relevance prior to trial.

Case management considerations are also relevant, such as a wide-ranging subpoena causing great inconvenience, commercial privacy concerns and delays in progressing to trial. In all of the circumstances, the court found that it was reasonable to issue the subpoenas in this case. It also ordered security for costs.

C. Costs in International Arbitration

C.1 Allocation of Costs

The approach to awarding costs in international arbitrations seated in Australia is similar to that applied by the courts to order costs in other civil proceedings in Australia. The ordinary rule is that costs follow the event (i.e., costs are awarded against the unsuccessful party).

Section 27(1) of the IAA provides that the tribunal has a discretion to allocate the costs of an arbitration, unless the parties have agreed otherwise. The tribunal may order to whom, by whom and in what manner the whole or any part of the costs that it awards are to be paid.16 If the tribunal makes no provision for costs in the award, a party to the arbitration may apply to the tribunal for directions as to costs within 14 days of receiving the award.17

Similarly, Article 46 of the new Arbitration Rules of the ACICA, which came into effect on 1 January 2016, provides that the tribunal has discretion to award the costs of the arbitration. In principle, costs are to be borne by the unsuccessful party. The arbitral tribunal may apportion costs between the parties if it determines it is reasonable, taking into account the circumstances of the case.

As an arbitral tribunal has discretion to award costs, the allocation of costs will be different for each tribunal. The tribunal may tax or settle the amount of costs to be awarded.18 The amount of costs that a party is to pay can be limited to a specified amount by the tribunal.19 The tribunal may order the unsuccessful party to pay a percentage of the successful party’s costs. This percentage may be between 60 percent and 80 percent of the successful party’s costs, or even higher or lower, depending on how the arbitration was conducted by the parties, such as whether one or the other party intentionally delayed the proceedings, was cooperative, or took steps that increased the costs in the arbitration.

If the tribunal intends to order the payment of a specified amount, it must give the parties notice sufficiently in advance of the costs being incurred.20 If the arbitration is governed under the new ACICA Rules, then the tribunal must fix the costs of arbitration in its award.21

If the costs have not been taxed or settled by the tribunal in the award, then they are taxable by an Australian court (i.e., for Australian-seated arbitrations).22 The party claiming costs must provide evidence that the costs were incurred (such as invoices or bank statements).

An arbitral tribunal seated in Australia may allocate costs on the same basis as the Australian courts. In Australian court proceedings, costs are to be paid on an ordinary (party and party) basis, unless the successful party can establish that there are special circumstances that warrant the exercise of discretion to order costs on a different basis.23 Special circumstances may be found where, for instance, the unsuccessful party has made serious unfounded allegations, pursued the proceeding for an ulterior purpose, wasted the court’s time or engaged in some other improper conduct.24 In each case, it is a question to be determined in light of the particular facts and circumstances of the case.

The Victorian Court of Appeal in IMC Aviation Solutions Pty Ltd. v. Altain Khuder LLC25 made it clear that there is no presumption in arbitration-related proceedings in the Australian courts that costs are awarded against an unsuccessful award debtor on an indemnity basis for failing to establish a ground for resisting enforcement or for mounting an “unmeritorious” case in and of itself.26 In Sino Dragon Trading Ltd. v. Noble Resources International Pte Ltd. (No 2),27 the FCA dismissed an application for indemnity costs against the unsuccessful challenger to the appointment of arbitrators on the basis that it was neither supported by any presumption nor was there any special or unusual feature in the facts.

A similar approach has been taken by Supreme Court of New South Wales (John Holland Pty Limited v. Kellogg Brown & Root Pty Ltd. [No 2]28 and Colin Joss & Co. Pty Ltd. v. Cube Furniture Pty Ltd,29) in court proceedings relating to domestic arbitrations.

C.2 Security for Costs

A party may be ordered by a tribunal to pay security for costs at any time before an award that finally decides the dispute is issued under Section 23K(1) of the IAA. However, a tribunal must not make such an order solely on the basis that: a party is not ordinarily a resident in Australia; a party is a corporation incorporated or an association formed under the law of a foreign country; or a party is a corporation or association with their central management or control exercised in a foreign country.30 The provisions of the UNCITRAL Model Law (including Article 17, which gives the tribunal the power to award interim measures, such as security for costs) also apply.31 Similarly, under Article 33 of the ACICA Rules, parties may request security for costs as an interim measure.

C.3 Recovery of Costs

Section 27(1) of the IAA expressly provides that the fees and expenses of the tribunal are included in the costs of an arbitration that may be awarded by the tribunal. Article 44 of the new ACICA Rules provide further guidance on what constitutes the “costs of arbitration.” The exhaustive list in Article 44 includes: (a) the fees and expenses of the arbitration institution; (b) the costs of expert advice and other assistance required by the tribunal; (c) the travel costs and other expenses of witnesses; (d) the legal and other costs, such as the costs of in-house counsel and venue and hearing costs, directly incurred by the successful party in conducting the arbitration; and (e) the costs associated with any request for emergency interim measures of protection.

  1. Leigh Duthie is a partner in Baker & McKenzie’s Melbourne office, with extensive experience acting for major Australian and international corporations and government agencies in complex claims in the construction, infrastructure, resources and energy industries in international and domestic arbitration, expert determination and court proceedings in all major Australian courts.
  2. Jo Delaney is special counsel in Baker & McKenzie’s Sydney office, with more than 15 years of experience resolving complex cross-border disputes through international arbitration based in London and Sydney.
  3. Mia Livingstone Alé is a senior associate in Baker & McKenzie’s Melbourne office with over 10 years experience in litigation, arbitration and other alternative dispute resolution and is published in Australian and international law journals on arbitration.
  4. Erika Williams is an associate in Baker & McKenzie’s Sydney office with experience in international arbitration and litigation. The authors would like to thank Kate Farrell and Angus Napier for their assistance in preparing this chapter.
  5. [2015] VSC 80 (Croft J).
  6. [2015] VSCA 37.
  7. A similar argument was raised in KNM Process System Sdn Bhd v Mission NewEnergy Ltd. [2014] WASC 437 but not accepted on the facts of the case. A stay was granted on different grounds.
  8. [2015] VSC 268.
  9. (2014) 311 ALR 387.
  10. See, for example, Sauber Motorsport AG v Giedo Van Der Garde BV & Ors [2015] VSCA 37at [7]-[8].
  11. [2015] NSWCA 229.
  12. [2015] FCA 228.
  13. [2015] FCA 1028.
  14. [2015] FCA 1028.
  15. [2015] VSC 183.
  16. s 27(2)(a) IAA.
  17. s 27(4) IAA.
  18. s 27(b) and (c) IAA.
  19. s 27(2)(d) IAA
  20. s 27(2A) IAA.
  21. Article 44, ACICA Arbitration Rules.
  22. s 27(3) IAA.
  23. IMC Aviation Solutions Pty Ltd. v Altain Khuder LLC (2011) 38 VR 303 at [324].
  24. Ibid at [325].
  25. (2011) 38 VR 303.
  26. Ibid at [336].
  27. [2015] FCA 1046.
  28. [2015] NSWSC 564.
  29. [2015] NSWSC 829
  30. s 23K(2) IAA.
  31. s 23K(3) IAA.