Panorama of Sydney harbour and bridge in Sydney city, New south wales, Australia

Executive summary

In Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd [2020] FCA 1116, the Federal Court of Australia (FCA) enforced an arbitral award as a judgment of the court in accordance with section 8(3) of the International Arbitration Act 1974 (Cth) (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.

Background

Energy City Qatar Holding Company (ECQ) and Hub Street Furniture Pty Ltd (Hub) entered into a contract for the supply and installation of street lighting and furniture.  ECQ paid Hub over $800,000 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”.

ECQ attempted to commence arbitration by requesting the Qatari Plenary Court to appoint a tribunal of three arbitrators.  ECQ notified an unrelated company in Qatar of the court proceedings rather than Hub in Australia.  The Qatar company provided the notice to Mr Muraywed, an employee of Hub Qatar Pty Ltd (Hub Qatar).  Mr Muraywed translated the notice from Arabic to English and provided the notice to the directors of Hub in Australia.

The Qatari Plenary Court appointed an arbitral tribunal of three arbitrators.  The tribunal provided multiple notices to Hub about the conduct of the arbitration.  Mr Muraywed received these notices and provided them to the directors of Hub in Australia.  The tribunal was satisfied that it had notified Hub of the conduct of the arbitration and issued an award. ECQ sought enforcement of the award in Australia.

Hub challenged enforcement of the award on the basis that it had not received notice of the commencement or the conduct of the arbitration, it had not received notice of the appointment of the arbitral tribunal, the composition of the arbitral authority was not in accordance with the arbitration agreement, it was unable to present its case, the arbitral procedure was not in accordance with the arbitration agreement and it would be contrary to public policy to enforce the award as it involved a breach of the rules of natural justice.

Decision

The FCA dismissed Hub’s arguments and enforced the award.

First, the FCA emphasised that in enforcing a foreign award it must have regard to the objects of the IAA set out in section 2(D), that is “to facilitate international trade and commerce by encouraging the use of arbitration to resolve disputes, facilitate the use of arbitration agreements and facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce”.

Second, turning to the facts of the present case, the FCA found that Hub did have notice of the arbitration and thus, was given an adequate opportunity to present its case.  Hub, however, chose not to do so. As there was no practical injustice, there was no breach of the rules of natural justice and thus, enforcement of the award would not be contrary to public policy.

Third, the FCA noted that the arbitration was conducted in Arabic and the award issued in Arabic rather than English (though the notices issued to Hub were in English) and thus, the procedure was not in accordance with the arbitration agreement.  Nonetheless, the judge found that as a matter of discretion, this was not a reason to not enforce the award.  As Hub chose not to participate in the arbitration proceedings, Hub was not prejudiced by this irregularity.

Fourth, regarding the appointment of the arbitral tribunal, the FCA considered that the notice of appointment of the arbitral tribunal and the appointment process was governed by Qatari law as the procedural law of the arbitration.  The notice and the appointment process was carried out in accordance with Qatari law.  The FCA found that it was not satisfied that Hub had not been given notice of the appointment of the arbitral tribunal and notice of the arbitration proceedings.

Having rejected all of Hub’s grounds for challenging the award, the FCA enforced the award.

Security for costs

In a separate (earlier) decision,[1] the FCA rejected ECQ’s application for security for costs.  The application was made under section 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

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” (emphasis added).

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.

Accordingly, on the basis that ECQ was found to not be acting in a defendant/respondent capacity, the FCA refused the application for security for costs.

Key Takeaways

This case is a great lesson in not ignoring or wilfully turning a blind eye to communications or notices for arbitral proceedings.  If notices of the commencement of an arbitration are ignored and/or a party refuses to participate, it is likely that the arbitral tribunal will continue with the proceedings.  It is then very hard for the non-participating party to later challenge the enforcement of an award on the basis of a breach of “natural justice”.

Another lesson worth noting is ensuring strict compliance with the notice and procedural requirements set out in the dispute resolution clauses, such as giving notice to the other party in accordance with the notice provisions and following the agreed method for appointing the tribunal.

The FCA decision confirms that the Australian courts will not lightly accept challenges to the enforcement of an award.  Any deficiencies in procedural fairness or breaches of natural justice need to be substantial in order for a challenge to succeed.  In short, the Australian courts have set a high bar for such challenges, which is appropriate given the focus on arbitration as a commercial and efficient way to resolve disputes.

 

[1] [2020] FCA 1033.

Previous articleMulti-tiered dispute resolution clauses: a reminder of the Court of Appeal’s split decision
Next articleThe long and winding road: The evolving interface between winding-up petitions and arbitration agreements in Hong Kong