Aerial view of Melbourne, Australia (morning).

AUSTRALIA

Jo Delaney and Charlotte Hendriks

A. LEGISLATION AND RULES

A.1      Legislation

International arbitration continues to be governed by the International Arbitration Act 1974 (Cth) (IAA). There have been no further amendments to the IAA this year.

Australia has entered into two new free trade agreements, one with Indonesia and one with Hong Kong. The Australia-Hong Kong Free Trade Agreement entered into force on 17 January 2020. The Australia-Indonesia Comprehensive Economic Partnership Agreement (IA-CEPA) has been ratified by Australia but has not yet entered into force.

A.2      Institutions, Rules and Infrastructure

There have been no changes to the Arbitration Rules of the Australian Centre for International Commercial Arbitration (ACICA) this year.

B. CASES

B.1      Arbitration agreements

In the 2019 Arbitration Yearbook, it was reported that the Full Court of the Federal Court of Australia (FCAFC) had to some extent clarified the approach of the Australian courts to the interpretation of arbitration agreements for the purpose of staying court proceedings under section 7 of the IAA and article 8 of the UNCITRAL Model Law. In Rinehart v. Rinehart (No. 3)[1] the FCAFC endorsed the liberal approach to the interpretation of arbitration agreements that had been taken in previous cases, such as Comandate Marine Corp v. Pan Australia Shipping Pty Ltd.[2] The FCAFC commended the prima facie approach as that approach gives support to the jurisdiction of the arbitrator but stated that it was “difficult to see how the court can exercise its power under section 8 without forming a view as to the meaning of the arbitration agreement.”[3] The FCAFC emphasized that the arbitration agreement must be construed in accordance with accepted principles of contract interpretation, like any other contractual provision. That interpretation is to be a liberal interpretation that takes into account common sense and commercial realities.[4]

The FCAFC’s decision was appealed to the High Court. The specific issue before the High Court was whether the FCAFC erred in concluding that where an arbitration clause states that disputes “under” the agreement are to be referred to arbitration such clause includes disputes as to the validity of the agreement.

On 8 May 2019, the High Court released its decision in Rinehart & Anor v. Hancock Prospecting Pty Ltd.[5]The High Court unanimously dismissed the appeal and granted a stay. The High Court considered that the scope of the arbitration agreement could be determined by applying orthodox principles of contractual interpretation, including by reference to the language used by the parties, the surrounding circumstances of the agreement and its purpose.[6] In making this assessment, the High Court determined that a dispute regarding the validity of the agreement ought to be referred to arbitration as it was inconceivable that the parties had intended for a dispute as to the validity to be heard in public court proceedings rather than confidential arbitration.[7] Notably, the High Court did not comment on the standard to be applied to the review of an arbitration agreement, i.e. whether a prima facie approach (as adopted in many Model Law jurisdictions, such as Singapore) or balance of probabilities approach is to be adopted or whether it is to be presumed that the parties intended disputes to be referred to arbitration unless expressly indicated otherwise (this was the approach adopted by the House of Lords in Fiona Trust & Holding Corporation v. Privalov[8]).

The High Court also considered whether proceedings relating to a third party who was not a party to the arbitration agreement could be stayed on the basis that the third party was claiming “through or under” a party to the arbitration agreement. The third parties were assignees of the mining tenements that part of the property of the family trusts that were in dispute. Thus, their rights may have been affected by the outcome of any proceedings. The majority of the High Court granted a stay finding that the third parties were claiming “through or under” parties to the family trust deeds and thus, the arbitration agreement. The majority stated that “there is no good reason why this claim should not be determined as between the claimant and the assignee in the same way as it will be determined between the claimant and the assignor.” Edelman J dissented, focusing on the broader issues of privity of contract. As the third parties were not direct parties to the arbitration agreement, they had not agreed to arbitration and thus, should not be regarded as parties on the basis that they were claiming “through or under” another party who was a party to the arbitration agreement.

A more detailed analysis of this case is in a separate article that can be accessed here.

The Australian courts have continued to issue orders to stay court proceedings whilst the matter is referred to arbitration. For example, in Degroma Trading Inc v. Viva Energy Australia Pty Ltd,[9] a stay was granted on appeal. In that case, the question was whether the underlying contract containing the arbitration agreement existed such that a stay ought to be granted. The Full Federal Court found that the court was not required to decide whether the underlying contract existed, due to the principles of separability and competence-competence. The court held that the tribunal has the power to decide any question of jurisdiction, including whether the arbitration agreement did in fact exist.[10]

In Duro Felguera Australia Pty Ltd v. Samsung C&T Corporation,[11] Duro Felguera Australia Pty Ltd (“Duro”) had applied to the court for “urgent declaratory relief” in relation to security that had been called by Samsung C&T Corporation (“Samsung”). Importantly, Duro had not applied for an injunction to prevent the calling of the security as the parties had agreed that the security would be provisionally held in escrow. Samsung applied for a stay on the basis of an arbitration agreement in the underlying contract. Duro claimed that the “urgent declaratory relief” it sought was outside the scope of the arbitration agreement, relying on an express carve-out for “urgent declaratory relief” in the arbitration clause. Taking a pragmatic approach, the court granted a stay as the proceeding involved the determination of a matter that is capable of settlement by arbitration.

In US Healthcare Food Group Pty Ltd v. Zouky,[12] the District Court of Queensland did not order a stay because the court found that there was no arbitration clause in the agreement that was the subject of the dispute. In that case, the parties had entered into two separate agreements, the first of these agreements, a unit purchase agreement (“UPA”), contained an arbitration clause. A dispute subsequently arose in respect of obligations under the second agreement, a Loan Agreement. The defendant submitted an application for a stay pursuant to section 7(2) of the IAA, maintaining that the Loan Agreement was linked to the UPA by reference to a “trigger event” which was defined in the UPA. Contrastingly, US Healthcare Food Group Pty Ltd submitted that the relief sought primarily concerned the Loan Agreement, not the UPA, and thus the stay should be refused. The court ultimately determined that the Loan Agreement did not fall within the scope of the arbitration provision of the UPA, as this was a separate, late agreement, which was independent of it. Accordingly, the court did not grant a stay.

In RW Health Partnership Pty Ltd v. Lendlease Building Contractors Pty Ltd & Anor,[13] RW Health Partnership Pty Ltd (“RWHP”) sought a stay on the basis that the dispute was the “subject of an arbitration agreement” and if it was found otherwise, RWHP claimed that the parties’ subsequent correspondence in preparation for an arbitration constituted an ad hoc agreement to arbitrate. The Supreme Court of Victoria found that the dispute was not the subject of an arbitration agreement within the meaning in section 8(1) of the Commercial Arbitration Act 2011 (Vic). Applying the usual principles for the construction of contracts to the dispute resolution clause, the court held that the dispute related to a specific category of disputes that were to be referred to expert determination rather than arbitration in accordance with the terms of the clause. The court also found that there was no evidence of an ad hoc arbitration agreement. The court considered, amongst other things, that the parties’ correspondence did not demonstrate an intention to vary the contract or enter into a separate agreement. Furthermore, there was nothing to be inferred from the correspondence (other than that the parties were preparing to put steps in place for arbitration under the “mistaken apprehension”) that arbitration was the appropriate dispute resolution mechanism. Therefore, the court did not grant a stay.

B.2      Arbitration-Mediation-Arbitration

A recent decision of the Supreme Court of New South Wales, Ku-ring-gai Council v. Ichor Constructions Pty Ltd,[14] concerned a domestic arbitration in which the arbitrator put forward a settlement proposal to the parties on the final day of the hearing after obtaining written consent from the parties to do so. Ultimately the proposal was unsuccessful and the arbitration resumed. The arbitrator did not obtain the written consent of the parties to resume the arbitration. Ichor Constructions Pty Ltd subsequently protested, claiming that it had not consented to the continuation of the arbitration since the arbitrator’s mandate had been terminated as the arbitrator had acted as a mediator. Ichor Construction argued that the written consent of both parties was required under section 27D(1) of the Commercial Arbitration Act 2010 (NSW) before the resumption of the arbitration. Ku-ring-gai Council applied to the court for orders that the arbitration had not been terminated and should continue arguing that written consent had been given. The Council also relied on arguments of waiver and estoppel. The court considered that the arbitrator’s attempt to settle the dispute by way of settlement proposal constituted a mediation proceeding and that written consent to resume the arbitration on or after the termination of mediation proceedings was required by section 27D. As no written consent had been obtained, the court found that the arbitrator’s mandate was taken to have been terminated and a substitute arbitrator should be appointed.

On appeal,[15] the Council re-advanced the estoppel and waiver arguments. The NSW Court of Appeal acknowledged that any appeal on the question of whether an arbitrator was unable to act or whether a substitute arbitrator should be appointed would only delay the process. The court dismissed the application for leave to appeal as it was held to be incompetent. The court stated that, in any event, leave to appeal would not have granted as “the application did not raise any matter of general importance or principle.”

B.3      Enforcement of an ICSID award

The Australian courts continue to take an arbitration-friendly approach to applications to set aside and enforce awards, including awards made under the International Convention on the Settlement of Investment Disputes between States and Nationals of other States (“ICSID Convention”). Interestingly, two applications have recently been made to enforce ICSID awards against State parties.

Australia is a party to the ICSID Convention. The ICSID Convention is set out in Schedule 3 of the IAA. Section 32 of the IAA provides that chapters II to VII of the ICSID Convention have the force of law in Australia. Section 35(4) of the IAA provides that an award made under the ICSID Convention may be enforced in the Federal Court of Australia (FCA) with leave of the court as if the award were a judgment or order of the court. In the 2017-2018 Yearbook, we reported on the first case in which the Australian courts recognized an ICSID award, Lahoud v. The Democratic Republic of Congo.[16]

In Infrastructure Services Luxembourg S.A.R.L v. Kingdom of Spain,[17] an application was made to the FCA to enforce an ICSID award made against the Kingdom of Spain (“Spain”). The arbitration related, inter alia, to alleged breaches of the Energy Charter Treaty as a result of regulatory changes made by Spain that affected the claimant’s investment in the renewable energy sector. The tribunal found that Spain was in breach of its obligations to provide fair and equitable treatment under the Energy Charter Treaty and issued an award granting compensation to the claimant.

On 17 April 2019, the Infrastructure Services Luxembourg S.A.R.L (“Infrastructure”) (the claimant in the arbitration) made an application to the FCA under the IAA for enforcement of the award as if it was a judgment of the court. On 23 May 2019, Spain applied for annulment of the award under article 52(1) of the ICSID Convention. The ICSID Secretary-General registered the application and notified the parties of a provisional stay of enforcement of the award (as required by rule 54(2) of the ICSID Arbitration Rules).

On 15 July 2019, Infrastructure applied for a stay of its own enforcement proceedings due to the now conflict with the ICSID provisional stay. Spain had issued a conditional appearance to the enforcement proceedings for the limited purpose of asserting immunity from the jurisdiction of the Australian courts pursuant to section 10(7) of the Foreign States Immunities Act 1985 (Cth) (“Immunities Act”). Spain opposed the stay application arguing that the FCA should first determine the foreign state immunity issue prior to exercising jurisdiction over Spain, including with respect to the requested stay.

On 1 August 2019, the FCA granted an order to stay the enforcement proceedings. In determining the stay application, the FCA considered the interplay between articles 52(5) and 54(1) of the ICSID Convention: article 52(5) provides for the mandatory temporary stay of enforcement if requested in an application for annulment, whilst article 54(1) provides that a state party must recognize and enforce an award made pursuant to the ICSID Convention. The FCA determined that the obligations on a state party to recognise and enforce an award are subject to the provisional stay of enforcement provisions, such that a provisional stay also suspends Australia’s enforcement obligations.[18]

In respect of Spain’s assertion of immunity, the FCA considered its power under section 23 of the Federal Court of Australia Act 1976 (Cth) to make orders, including interlocutory orders, it thinks appropriate in relation to matters “in which it has jurisdiction” and whether the FCA had “jurisdiction” given Spain’s conditional appearance asserting foreign State immunity.

The FCA found that it had jurisdiction to issue the stay and that it was not necessary to determine the foreign State immunity issue prior to issuing the stay. This finding was made on the basis that “staying the proceeding does not implead Spain in any way; it does not “make the foreign State against its will a party to a legal proceeding.”[19]

Subsequently, on 25 October 2019, the stay was lifted. This was following a decision by the ad hoc committee appointed in the ICSID annulment proceedings to lift the provisional stay.

A second application to enforce an ICSID award was made in October 2019 by Tethyan Copper Company Pty Ltd. This application is to enforce an award of over USD 4 billion against the Islamic Republic of Pakistan. In November 2019, Pakistan filed an application with ICSID for annulment of the award.

 

[1] [2017] FCAFC 170.

[2] [2006] FCAFC 192.

[3] [2017] FCAFC 170 at [145].

[4] [2017] FCAFC 170 at [146].

[5] [2019] HCA 13.

[6] [2019] HCA 13 at 43-44.

[7] [2019] HCA 13 at [48].

[8] [2008] UKHL 40.

[9] [2019] FCA 649.

[10] [2019] FCA at [64].

[11] [2019] WASC 90.

[12] [2019] QDC 58.

[13] [2019] VSC 353.

[14] [2018] NSWSC 610.

[15] Ku-ring-gai Council v Ichor Constructions Pty Ltd [2019] NSWCA 2.

[16] [2017] FCA 982.

[17] [2019] FCA 1220.

[18] [2019] FCA 1220 at [28].

[19] [2019] FCA 1220 at [37].

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