Jo Delaney Charlotte Hendriks and Anita Juric
A. LEGISLATION AND RULES
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.
In 2020, Australia signed the Regional Comprehensive Economic Partnership (RCEP), alongside 14 other signing countries, comprising the world’s largest free trade agreement. The RCEP has not yet entered into force, however the Australian Government is working towards ratification in 2021. Three free trade agreements entered into force in 2020: the Australia-Indonesia Comprehensive Economic Partnership Agreement (IA-CEPA) entered into force on 5 July 2020; the Peru-Australia Free Trade Agreement (PAFTA) entered into force on 11 February 2020; and the Pacific Agreement on Closer Economic Relations (PACER) Plus entered into force on 13 December 2020.
A.2 Institutions, rules and infrastructure
The Arbitration Rules of the Australian Centre for International Commercial Arbitration (ACICA) are currently under review by the ACICA Rules Committee, following a public consultation process that occurred in the second half of this year. The current review addresses a number of areas, including consolidation, time and costs of arbitration, ACICA’s exclusive administration, arbitrator appointment, arbitration procedure and multi-contract disputes (amongst other things). The purpose of the proposed revisions are to build upon ACICA’s established practice of providing a just, efficient, timely and cost-effective arbitral process.
B.1 Arbitration agreements
In Gemcan Constructions Pty Ltd v Westbourne Grammar School, the Supreme Court of Victoria considered whether the terms of an underlying construction contract constituted a valid agreement to arbitrate. In this case, a dispute arose relating to the scope of construction works at the school, delays and payment for the works. Gemcan referred the dispute to arbitration and applied to the court for the appointment of an arbitrator. Clause 42 of the general conditions in the contract stated: “42.2. If the dispute has not been resolved within 28 days of service of the notice of dispute, that dispute shall be and is hereby referred to arbitration” and “42.3. If within a further 14 days the parties have not agreed upon an arbitrator, the arbitrator shall be nominated by the person in Item 32(a). The arbitration shall be conducted in accordance with the rules in Item 32(b).” However, problematically, items 32(a) and (b) of annexure A stated “Not Applicable.” On this basis, Westbourne Grammar School argued that this wording indicated that it was not the parties’ intention at the time of entering into the contract that disputes be referred to arbitration. The court determined that the wording of items 32(a) and (b) did not indicate an intention to negate the referral to arbitration because items 32(a) and 32(b) were referable to clause 42.3 only, not clause 42.2, and clause 42.3 provided only procedural aspects of an arbitration, rather than the agreement to arbitrate itself. As clause 42.2 was clear and unambiguous in its terms, it was evident the parties had an objective intention that disputes be referred to arbitration if not resolved within 28 days of a notice of dispute. The court also appointed the arbitrator.
In Dialogue Consulting Pty Ltd v Instagram, Inc, Dialogue Consulting Pty Ltd (“Dialogue“) commenced court proceedings alleging, amongst other things, misleading and deceptive conduct and anti-competitive conduct in breach of the Australian Consumer Law (ACL). Instagram, Inc., Facebook Inc. and Facebook Ireland Limited (“Instagram“) applied for a stay of the court proceedings pursuant to section 7(2) of the IAA on the basis of the arbitration clause in the parties’ contract. The Federal Court of Australia (FCA) determined that Instagram had waived its right to arbitrate by taking multiple steps in the court proceedings over the course of a year before belatedly applying for a stay. During this time, Instagram had participated in the court proceedings, including the filing of a defense and evidence, seeking documents and attending hearings. As the application was made after an unreasonably long period, Dialogue would suffer prejudice if the FCA were to grant a stay at this stage of the proceedings. Accordingly, the FCA refused to grant a stay.
Whilst the case turned on the issue of waiver, a number of important arbitration-related issues arose. First, in considering whether the arbitration agreement was valid, the FCA adopted the balance of probabilities approach rather than the prima facie approach. Also, the FCA determined that the law to be applied to the formation of the arbitration agreement was the law of Victoria as the law of the forum rather than the law of California, the governing law of the contract. The FCA considered the law relating to the formation of contracts on the internet. However, the FCA did not consider the express provision in the arbitration agreement that it was governed by the US Federal Arbitration Act (FAA) in this context (i.e., the formation of the arbitration agreement). The FCA did consider this provision in the context of the law of the procedure of the arbitration. Further, the FCA also determined that as the law of the arbitration agreement was the FAA, US law should apply to the question of waiver. The FCA also considered and indicated that Instagram had waived its rights under Australian law.
Second, the FCA rejected many of Dialogue’s arguments relating to the formation, interpretation, and application of the arbitration agreement. Notably, the FCA rejected the argument that the arbitration agreement was an unfair term of contract under section 24 of the ACL, including because it was found that there was no significant imbalance in the parties’ rights and obligations, the arbitration agreement was necessary to protect Instagram’s legitimate interests and Instagram was to bear the majority of the arbitration costs.
In Inghams Enterprises Pty Ltd v Hannigan, the NSW Court of Appeal considered whether a claim for unliquidated damages was to be referred to arbitration pursuant to the multi-tiered dispute resolution clause in the contract. The clause provided for the informal and formal dispute resolution of all disputes that “arise out of this Agreement.” The dispute resolution process provided, amongst other things, that where mediation was unsuccessful, any disputes that “concern any monetary amount payable and/or owed…under this Agreement” must be referred to arbitration. After an unsuccessful mediation, Gregory Hannigan (“Hannigan“) sought to refer the matter to arbitration. Inghams Enterprises Pty Ltd (“Ingham“) resisted the referral arguing that: the dispute was not a dispute “under this Agreement”; or, in the alternative, that Hannigan had waived his right to insist on compliance with the arbitration clause as he had previously commenced court proceedings under the same contract.
While Hannigan was successful at first instance, the majority allowed the appeal. The Court of Appeal found that the multi-tiered dispute clause did apply to the agreement as, constructed broadly, it covered any dispute relating to the agreement, including a claim for unliquidated damages. However, the majority (Meagher and Gleeson JJA agreeing) held that the claim for unliquidated damages was not to be referred to arbitration, as it was not a claim “under this Agreement.”
Interestingly, Justice Bell, President of the NSW Court of Appeal, disagreed. Bell P found that the damages claim was a claim “under the Agreement.” Bell P gave extensive consideration to dispute resolution clauses, emphasizing the importance of the courts taking a broad and liberal approach to construction. His Honour noted, with reference to recent case law, that “in Australia, unlike other jurisdictions, the process of contractual construction of dispute resolution clauses has not been overlaid by presumptions.. In particular, his Honour commented: “where one has relational phrases capable of liberal width, it is a mistake to ascribe to such words a narrow meaning, unless some aspect of the constructional process, such as context, requires it.”
Whilst this decision demonstrates that the Australian courts will continue to interpret dispute resolution clauses objectively with reference to orthodox principles of contractual interpretation, in reality, the application of those principles in practice is not entirely clear, as indicated by the split decision of the Court of Appeal.
B.3 Enforcement of foreign awards under the New York Convention
The Australian courts continue to take an arbitration friendly approach to applications to enforce awards.
In Tianjin Jishengtai Investment Consulting Partnership Enterprise v Huang , the FCA determined that an award made in the People’s Republic of China in an arbitration administered by the China International and Trade Arbitration Commission (CIETAC) should be enforced in Australia. Enforcement was challenged on the basis of formal issues, including whether the form of the orders sought reflected the CIETAC award, the relevant currency, and whether post-award interest should be ordered. The court acknowledged that the orders should reflect those in the award. It issued orders converting the damages amount into Australian dollars. Post-award interest was not ordered as it was not granted in the CIETAC award. The decision highlights that in enforcing awards, the Australian courts will ensure the judgment reflects the orders in the award whilst also taking a pragmatic approach to practical issues such as the currency of monies ordered.
The Australian courts have also indicated that they will not consider the merits of an award in enforcement proceedings. In the matter of Jamac Excel Logistics Pty Ltd ACN 165 961 268 also concerned the enforcement of a CIETAC award under section 8 of the IAA. The defendants resisted enforcement arguing that the arbitration had occurred in accordance with Chinese law, rather than in accordance with the rules of the ICC and subject to the interpretation of Incoterms 2010, as was required by the underlying agreement. However, Justice Ball noted that this argument was not a valid ground for refusing enforcement. As the conditions for enforcement had been satisfied, the award was enforced.
In Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2), the FCA enforced an arbitral award as a judgment of the court in accordance with section 8(3) of the IAA. Notably, the FCA enforced the award in circumstances where the respondent did not participate in the proceedings but later attempted to raise procedural irregularities to prevent enforcement of the award. This case involved a contract for the supply and installation of street lighting and furniture. Energy City Qatar Holding Company (ECQ) paid Hub Street Furniture Pty Ltd more than USD 620,000 as advance payment but later decided not to proceed with the contract and demanded repayment of this amount. After some brief email exchanges, Hub did not respond to ECQ’s requests and retained the money for four years. The contract provided that the parties were to refer disputes to arbitration “under the rules of arbitration of Qatar.” In a separate (earlier) decision, the FCA rejected ECQ’s application for security for costs, made under section 23 of the Federal Court of Australia Act 1976 (Cth).
It is common practice in Australia for security for costs to be granted to parties that occupy a defendant/respondent position in proceedings rather than the position of plaintiff/applicant. However, in these proceedings, ECQ, the award creditor, applied for security on the basis that the enforcement proceedings were defensive in nature. ECQ argued that as the proceedings were made necessary by Hub’s objections to the enforcement of the award, it was Hub that was the party seeking relief and ECQ was in effect, the defendant. ECQ relied on the wording in section 8(5) of the IAA: “in any proceeding in which the enforcement of a foreign award is sought, the court may, at the request of the party against whom it is invoked, refuse to enforce the award.”
The FCA determined that a party resisting the enforcement of an arbitral award under the IAA was in a purely defensive position which, as a matter of principle, should not result in the making of an order for security for costs against it. The relevant test is whether the debtor’s position is defensive in nature or not. Ordering security for costs may have the undesired effect of depriving the debtor of the opportunity to defend proceedings which they had not commenced.
B.4 Enforcement of foreign awards under the ICSID Convention
The Australian Courts have also enforced awards under the International Convention on the Settlement of Investment Disputes between States and Nationals of other States (“ICSID Convention“). Section 32 of the IAA provides that chapters II to VII of the ICSID Convention have the force of law in Australia. The ICSID Convention is set out in Schedule 3 of the IAA. ICSID awards may be enforced in Australia under section 35(4) of the IAA. In the 2017-2018 edition of the Baker McKenzie International Arbitration Yearbook (“IA Yearbook”), we reported on the first case in which the Australian courts recognized an ICSID award, Lahoud v The Democratic Republic of Congo.
In the 2020 edition of the IA Yearbook, we reported on Infrastructure Services Luxembourg SARL v Kingdom of Spain, one of the cases involving the enforcement of ICSID awards against the Kingdom of Spain (“Spain“). Infrastructure Services Luxembourg SARL (“Infrastructure“) applied to the FCA to enforce an ICSID award made against Spain. The arbitration related, inter alia, to alleged breaches of the Energy Charter Treaty (ECT) 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 ECT and issued an award granting compensation to the claimant.
Infrastructure applied to have the award recognized as a judgment of the court by the FCA. Spain challenged the jurisdiction of the Australian courts, asserting immunity from such jurisdiction pursuant to section 10(7) of the Foreign States Immunities Act 1985 (Cth) (“Immunities Act“).
As reported in the 2020 edition of the IA Yearbook, in a judgment released on 24 February 2020, the FCA enforced two ICSID awards against Spain in Eiser Infrastructure Ltd v Kingdom of Spain. The FCA rejected Spain’s argument that it was immune from the jurisdiction of the Australian courts (asserted pursuant to sections 9 and 10(7) of the Immunities Act) with respect to enforcement of the ICSID awards.
Justice Stewart further determined that immunity does not arise on enforcement of an award under the ICSID Convention (and thus, the IAA). Justice Stewart then had to consider the potential conflict with immunity under section 9 of the Immunities Act (which provides that a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding except as provided by or under the Immunities Act). Justice Stewart held that by becoming contracting parties to the ECT and the ICSID Convention (under which Spain was obliged to recognize and enforce awards), Spain had submitted to the jurisdiction of the Australian court for the purposes of enforcement. Thus, Spain had waived immunity on enforcement and was subject to the jurisdiction of the Australian courts. On this basis, Justice Stewart enforced both awards as judgments of the Australian courts.
However, recently on 1 February 2021 in Kingdom of Spain v Infrastructure Services Luxembourg SARL, the Full Court of the Federal Court (FCFCA) set aside the FCA’s orders for enforcement, not because it found that Spain had immunity but rather because it found that immunity did not apply to proceedings for recognition of an ICSID award under the ICSID Convention. Whilst the FCA had acknowledged the distinction between state immunity from jurisdiction, enforcement and execution, the FCFCA drew a further distinction finding that recognition was to be considered separately to enforcement or execution of an award under the ICSID Convention. The key issue was whether the question of immunity was to be applied to the recognition of an ICSID award as opposed to the enforcement or execution of the award.
In determining this issue the FCFCA considered article 54 of the ICSID Convention, which addresses recognition and enforcement of an award and article 55, which addresses the issue of immunity from execution under the law of the enforcing court. The FCFCA found that recognition and enforcement of an award are distinct under articles 54 and 55 and that article 55 does not apply to proceedings for the recognition of an award. Under article 54(1), States are obliged to recognize an award. Article 54(2) allows a party to apply for recognition of an award. As a party to the ICSID Convention, under article 54(1) and (2), Spain had agreed to the jurisdiction of the court for the purposes of recognition of the award. Hence, the FCFCA set aside the previous orders on the basis that they do not reflect a correct approach to recognition. Therefore, the appeal was allowed on a limited basis to hear further argument on the form that recognition should take.
  VSC 429.
  FCA 1846.
  NSWCA 82.
  FCA 767.
  NSWSC 1036.
  FCA 1116.
  FCA 1033.
  FCA 982.
  FCA 1220.
  FCA 157.
  FCAFC 3.