High Court of Australia
TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia
 HCA 5. See www.austlii.edu.au/au/cases/cth/HCA/20
Australian international arbitration law is confirmed by the High Court of Australia.
The Court unanimously dismissed a challenge to the constitutionality of the International Arbitration Act 1974 (“the Act”) and confirmed the finality of an award made under the Act.
Castel Electronics Pty Ltd ( “Castel”) and TCL Air Conditioner (Zhongshan) Co Ltd ( “TCL”) had agreed to an arbitration in Australia, Castel was successful and TCL sought to resist enforcement of the award on the basis that the Act undermined the integrity of the Federal Court of Australia by not allowing the Court to consider an error on the face of the Award, it had conferred judicial power on the arbitral tribunal because the enforcement provisions of the Act make an arbitral award finally determinative.
In considering the 2011 amendments to the Act, which include Article 35 and 28 of the Model Law, the Court rejected a submission that Article 28 or an implied term of an arbitration agreement required an arbitral tribunal to be correct in law. It confirmed that arbitral tribunals have a right to be wrong so long as the award is made in conformity with relevant procedural requirements, and it is not contrary to public policy. The absence of a power to review an award for error did not distort judicial independence or the institutional integrity of an enforcing court (Federal, State and Territory Supreme Courts).
The enforcement of the award was found to be an exercise of the judicial power of the Commonwealth. By agreeing to resolve their differences by arbitration, the parties also agreed to the limited grounds of review and the enforcement of an award was the enforcement of the binding result of the parties agreement to submit their dispute to arbitration, not the enforcement of any disputed right to submit to arbitration.
This judgement confirms that parties will be held to their agreement to determine a dispute through arbitration as well as the intent of the Model Law as well as the convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.
In two recent decisions, the High Court of Australia has clarified the obligation of arbitrators to give reasons in awards and considered the circumstances in which an expert determination may be overturned.
Westport Insurance Corporation v Gordian Runoff Ltd from the Court of Appeal of Victoria and the Court of Appeal of New South Wales  HCA 37. (5 October 2011).
In determining an appeal concerning the terms of reinsurance contracts and the application of s 18 B of the Insurance Act 1902 ( NSW) to limit and exclude liability, in the context of an arbitral award, the Court considered two apparently conflicting decisions concerning an arbitrators obligation to give reasons for an award and the extent and nature of those reasons. The Court of Appeal decisions were Oil Basins Limited v BHP Billiton (2007) 18 VR 346 and Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74. See our April 2010 note below.
Key Issues – what the Court found.
The applicable standard or the adequacy of arbitrator’s reasons -
- The nature and the complexity or circumstances of the dispute have a direct bearing on whether detailed reasons must be provided and the standard of those reasons.
When the Court will allow an appeal.
- Courts are not excluded from a supervisory role because arbitration is conducted by private treaty, awards may be set aside if they are shown to be erroneous.
- The New South Wales Commercial Arbitration Act 2010, which is likely to be enacted in the same terms by the other States, allows appeal by leave of the Court, following agreement of the parties. It requires arbitrators to provide reasons ( unless the parties agree otherwise) and provides a test of whether the decision is obviously wrong on the basis of the findings of fact or is attended with “serious doubt’’.
Relevance for International Arbitration in Australia
The implications of the decision have no direct bearing upon the recent amendments to the International Arbitration Act 1974, But will be relevant if an arbitration governed by the International Arbitration Act is procedurally governed by the law of a State or Territory of Australia.
Experts determinations – when will they be set aside?
Shoalhaven City Council v Firedam Civil Engineering Pty Ltd  HCA 38 (5 October 2011)
A dispute arose in relation to variations and extensions of time claims made by Firedam against Shoalhaven in respect of the design and construction of wastewater collection and transmission of the water under a sewerage scheme. The parties had contractually agreed that an expert’s determination would be conclusive should a dispute arise.
The New South Wales Court of Appeal ruled that non –jurisdictional mistakes of fact or opinion by an expert cannot be successfully challenged.
However, the test for whether a mistake is jurisdictional depends on several matters for example, what the parties actually agreed to remit to the expert, the nature of the mistake, particularly, whether there was a significant departure from the task and instructions provided by the parties.
In this case, the High Court of Australia reaffirmed established authority by overturning a decision of the New South Wales Court of Appeal, which had considered that the determination was inconsistent with the expert’s findings of fact. The High Court found that the Experts reasoning was consistent with the facts before him. In contrast to the standard of reasoning of an arbitrator, the contractual provisions of the contract dictate the standard of reasoning to be applied by the expert. This means that such determinations can only be set aside in the very limited circumstances which relating to the exercise of jurisdiction.
News – September 2011 - Contested enforcement proceedings.
IMC Aviation Solutions Pty Ltd v Altain Khuder LLC  VSCA 248. - 22 August 2011.
The Victorian Court of Appeal has refused enforcement of a foreign award against a non-party to the arbitration. The Court considered the jurisdictional issues relating to the enforcement of foreign arbitral awards.
In February 2011 (see below), we reported the decision of Croft J of the Supreme Court of Victoria enforcing a Mongolian arbitration award. However, the Court of Appeal has now overturned this decision, refusing enforcement. The question at issue was whether IMC Aviation Solutions Pty Ltd (IMC), while not a party to the arbitration agreement, was nevertheless bound by the award.
Croft J would not allow reopening of all of the jurisdictional issues which had been agitated before the Tribunal and declined to follow a recent decision of the Supreme Court of the United Kingdom, which had decided that a court could reopen these issues - see Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan (Dallah)  1 AC 763.
However, in a controversial conclusion, the Victorian Court of Appeal followed Dallah, despite the fact that the United Kingdom legislation is worded differently from the Australian legislation. The result was that the Court of Appeal also held - contrary to the conclusion of Croft J based on the New York Convention as adopted in Australia - that the onus of proof in such a case lay on the party seeking enforcement, rather than on the party seeking to resist enforcement.
It now seems that jurisdictional issues concerning the making of foreign awards may be revisited in contested enforcement proceedings in Australia. This will include a threshold issue of the identification of the parties to the arbitration agreement. It is therefore advisable that any jurisdictional issues be addressed at the earliest opportunity to ensure that an award is enforceable.
Conflicts may be avoided if care is taken to avoid one law being expressed to govern an arbitration agreement and another law to govern the contract, which is the subject of the arbitration (as was the case in IMC). Another consideration is that the separate legal status of corporations and principles upon which findings are made may vary significantly between jurisdictions. Consequently, we recommend that if possible, the parties agree that the same law apply to the matter in dispute as to the arbitration agreement.
Members of chambers are available to advise as to all aspects of enforcement proceedings.
Latest Issues in Arbitration.
Presentation by member Ron Salter to the Law Institute of Victoria ADR conference, 21 July 2011.
Click here to read.
Enforcement of a Mongolian arbitral award under the New York Convention by the Supreme Court of Victoria.
Altain Khuder LLC v IMC Mining Inc & Anor (28 January 2011)  VSC 1
The Supreme Court of Victoria has recently considered the enforcement of a Mongolian arbitral award under the New York Convention. The judgement of Croft J is significant because of his detailed analysis and consideration of the issues associated with the enforcement of foreign arbitral awards in Australia.
Altain Khuder brought an application in the Supreme Court of Victoria, for the enforcement of an award made by the Mongolian National Arbitration Centre under the auspices of the Mongolian National Chamber of Commerce and Industry against IMC Mining Solutions Pty Ltd (IMC). The award provided that it was liable to pay approximately $6 million USD to Altain Khuder in relation to a dispute concerning compliance with the terms of an Operations Management Agreement (Agreement) in respect of theTayan Nuur Iron Ore Project in Mongolia.
The applicable law for the arbitration had been Mongolian law. Although the Arbitrators had found that IMC was a party to the Agreement, in the proceedings before the Supreme Court of Victoria IMC contended that was not a party to the Agreement and consequently the Agreement could not bind IMC .The Tribunal had further erred in determining that Mongolian law was the applicable law. IMC said the award was therefore unenforceable.
Key aspects of the decision
The Award was a final and binding award under Mongolian law which was capable of being enforced in Victoria under the New York Convention. The Court found that because the parties had explicitly agreed that the law applicable to the Agreement for the purposes of the arbitration was Mongolian law. IMC could not rely on Dallah v Pakistan (UK Supreme Court) as an authority to allow a reopening of those issues which had been determined in the arbitration.
The Award had been tested and accepted in Mongolia, at the seat of arbitration. A Court in Mongolia, exercising a civil law jurisdiction, had determined that the award had complied with the Mongolian civil code. Accordingly, an issue estoppel also arose which prevented IMC from reopening those issues which had been the subject of the arbitration. According to common law principles, the Court was bound to give effect to this estoppel.
On 1 October 2010, the Commercial Arbitration Act 2010 of New South Wales law came into operation. It applies to domestic arbitrations and corresponds to the Commonwealth law applying to international arbitration.
This Act is the first piece of legislation following the adoption of uniform national laws agreed to by the Standing Committee of Attorneys-General on 7 May this year. All states and territories of the Commonwealth agreed to enact similar legislation.
The Act repeals the Commercial Arbitration Act 1984 (NSW) and adopts many features of the UNCITRAL model law. Accordingly, the Act gives substantial enhancement to arbitrators' powers with a reduction of the option to seek Court intervention. The Act also increases efficiency and finality by limiting the role of the Courts. The object of the Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals.
A right of appeal is only available if both parties agree or opt-in, a reverse of the pre-existing situation. There are very limited express bases for the removal of arbitrators or nominees. Arbitrators have also been given powers to order interim relief and specific performance.
The new Act applies to arbitration of disputes which have arisen since the commencement date of the operation of the Act, 1 October 2010.
This Act can be found at http://www.austlii.edu.au/au/legis/nsw/consol_act/caa2010219/
In our April note, we drew attention to the 'contest' between New South Wales and Victorian Courts of Appeal, as to the standard required of an Arbitrator.
On 3 September 2010, the High Court of Australia granted special leave to appeal on a number of
points from the New South Wales Court of Appeal decision ---- Westport Insurance Corporation v
Gordian Runoff Ltd  HCA 233.
The arbitration community – and indeed, the commercial world as a whole – will await the final
appeal with interest.
New international ‘best practice’ now provides a much more efficient framework for arbitration in Australia.
On 17 June 2010, the reforms to the International Arbitration Act 1974 (Cth) (“the Act’’) were passed by the Australian Parliament. Most of the amendments made to the UNCITRAL Model Law on International Commercial Arbitration (Model Law) in 2006 have been given the force of law in Australia with this new legislation. It is now the exclusive law governing international arbitration in Australia.
Arbitrators may now grant interim measures (similar to interlocutory injunctions), and parties may obtain support from the Courts to progress an arbitration.
Confidentiality is substantially enhanced.
The Federal Court, State and Territory Supreme Courts will now exercise concurrent jurisdiction in relation to matters arising under the Act. They will have limited and defined grounds to refuse enforcement of an award. Enforcement of foreign awards will no longer be at the risk of frustration and delay, for example, by the spurious institution of proceedings in the country where the award was made.
What the reforms will mean in practice.
- A higher threshold for bias challenges to arbitrators which requires proving that there is a 'real danger' of perceived bias on the part of the arbitrator (section 12(5)-(6));
- Parties may engage representatives who are not legally qualified to represent them at the hearing of the dispute (s24A(2));
Conduct of hearings
- Parties may apply to the court for subpoenas (s27A);
- They are also under a general duty to do all things necessary for the proper and expeditious conduct of the arbitration, and not to wilfully delay or prevent an award being made (s24B);
- The tribunal may make orders ( on an opt out basis) consolidating two or more arbitrations if the arbitrations concern common questions of law or fact, or relate to the same transaction (s27C);
- The arbitrator with the authority of the parties may act as a mediator, conciliator or other non-arbitral intermediary', for the purpose of resolving the dispute, provided that the arbitrator observes the principles of natural justice whatever his or her capacity (s27D);
- Opt-out rules are now created for the privacy and confidentiality of arbitration proceedings (s27E-F);
- The court may hear and determine questions of law arising out of the arbitration with the consent of the parties or the arbitrator and where it is likely to save the parties substantial costs, (s27J);
- An arbitrator (on an opt-out basis) now has the power to order specific performance (s33A);
- The Act allows an arbitrator to order security for costs and provides for comprehensive rules for the determination of liability to pay costs (s33B-D) as well as interest (s33E-F).
Australia will become a more attractive location for international arbitration.
Cross border arbitration clauses in contracts should be reviewed to ensure that the clauses remain valid, having regard to the narrower grounds upon which an award can now be challenged. Various opt in and opt out provisions of the reforms should also be considered when drafting arbitration agreements.
When a party to arbitral proceedings, you will now have access to interim measures of protection but there is a risk of a potential exposure to interest and costs when challenging an award.
Members of Dispute Resolution Chambers can advise on any aspect of Arbitration including these new reforms. See our contact page.
New International Commercial Arbitration legislation
The new Model Commercial Arbitration Bill which amends the International Commercial Arbitration Act 1974 is in the Australian Parliament. It is based on the UNCITRAL Model Law and its adoption by all the States and Territories is expected to result in uniformity not only between the arbitration laws of different provinces but also between the legal frameworks governing international and domestic arbitrations.
We include for your information a link to the background and status of this important reform.
And uniformity of national laws on domestic arbitration
On 7 May 2010, the Standing Committee of Attorneys-General (SCAG) agreed to adopt uniform national laws on domestic arbitration. This will involve all of the Australian States and Territories adopting the Model Bill, which was developed at the instance of New South Wales. While it is likely to be some little time yet before the legislation is actually in force, the fact that the legislation will be based on the UNCITRAL Model Law will mean that processes for international arbitration and domestic arbitration in Australia will be more closely aligned.
The New South Wales Attorney-General, The Honourable John Hatzistergos has acted with great speed and has introduced the Commercial Arbitration Bill 2010 in the Legislative Council.
His second reading speech can be accessed here.
Following swiftly on the below decisions, we can mention three more:
In Firedam Civil Engineering Pty Ltd v Shoalhaven City Council  NSWCA 59, the New South Wales Court of Appeal found that an expert determination was not binding upon the parties because of inconsistencies in the reasons given. Although not necessary to consider whether the Expert was required to give reasons to the standard with which those exercising a judicial function must comply. In passing, the Court, reflected upon what standard of reasons are required to be provided by an arbitrator.
Assuming it was a lesser standard, at a minimum experts, who are required to give reasons “should explain succinctly why, in light of what happened, they reached their decision and what the decision is (Bremer Handelsgellshcaft mbH v Westzucker GmbH ( No2)  2 Lloyd’s Rep 130 at 132-3 referring to the obligations of arbitrators: compare Oil Basins Lt v BHP Billiton Ltd VSCA 255;(2007) 18VR 346 and Gordian Runoff Limited v Westport Insurance Corporation  NSWCA 5). This standard is not complied with if the ultimate basis for a decision cannot be discerned because of inconsistency of reasons or findings.”
In Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd  QSC94, Justice Martin in the Supreme Court of Queensland felt disposed to steer an independent course between Oil Basins and Gordian by following a Queensland Court of Appeal decision in Cypressvale Pty Ltd v Retail Shop Leases Tribunal  QCA187 and quoting from the majority judgment in that case:
"The calibre, legal training and experience of members of the judiciary raise expectations that reasons they give for their decisions will attain a high level of sophistication. The same would not always be true of decisions of persons whose primary qualification for decision-making consists of specialist knowledge or experience rather than ability to produce reasons conforming to accepted judicial tradition. Reasons that would not be considered adequate if given by a judge may nevertheless suffice for some other decision-makers not chosen for their task because of their resemblance to the judiciary. In the end, the question whether reasons are 'adequate' falls to be considered in the context afforded by the nature of the question which has to be decided and other factors, including the functions, talents and attributes of the tribunal members or the individual in whom the duty of deciding questions of that kind has been vested. Considerations of the cost to litigants and the general public in requiring reasons to be given is another factor which must be weighed..."
While one cannot dispute everything that was said in 1995 and adopted by Martin J, it rather seems that His Honour's adoption of the words of the Cypressvale judgment puts him some distance away from the strongly held views of the New South Wales Court of Appeal in Gordian.
On a more positive level, Justice Croft in the Supreme Court of Victoria, in Thoroughvision Pty Ltd v Sky Channel Pty Ltd VSC139 found himself able to say that reasons need show only that the arbitrator grasped the main contentions advanced by the parties, and communicated to the parties, in broad terms, the reasons for the conclusions reached. He said that the reasoning process must be exposed so that the reader of the award can understand how and why the conclusion was reached, and that it was clear that reasons need not be elaborate or lengthy provided that these requirements are met. He was able to distinguish the case before him from the Oil Basins case in terms of substance, complexity, and length, and refused to accept that the arbitrator's reasons were insufficient.
After a series of decisions which disappointed the arbitration community, the Supreme Court of Victoria has recently handed down some judgments which are widely regarded as 'arbitration friendly'.
In AED Oil Limited v Puffin FPSO Ltd  VSCA 37, the Court of Appeal overturned a first instance decision in which the judge had refused an application for a stay of proceedings in favour of arbitration, on the ground that the applicant was entitled under the contract in question to seek 'urgent interlocutory or declaratory relief from a court of competent jurisdiction where, in that party's reasonable opinion, that action is necessary to protect that party's rights'. The Court concluded that the claim in question was not urgent, and stayed the proceedings in favour of arbitration.
In Arnwell Pty Ltd v Teilaboot Pty Ltd  VSC 123, the Court refused an application to restrain an arbitrator from recommencing arbitration proceedings which had been previously adjourned. The application was essentially based on Section 47 of the Commercial Arbitration Act 1984, which provided the court with the same power to make interlocutory orders in connection with arbitration proceedings as it had in relation to proceedings in court. However, Justice Croft determined that Section 47 did not give the Court jurisdiction to entertain the application to restrain the arbitrator.
Another interesting 'arbitration friendly' decision has been handed down by the New South Wales Court of Appeal in Gordian Runoff Limited v Westport Insurance Corporation  NSWCA 57, where the President Allsop referred to the much-criticised decision of the Victorian Court of Appeal in Oil Basins Ltd v BHP Billiton Ltd  VSCA 255, in which the Court required arbitrators in an admittedly large and complex dispute to give reasons equivalent to those of a judge.
While avoiding wholesale criticism of that decision, Allsop P (with whom the other members of the bench agreed) stated:
"...I am persuaded to the point of conviction that it is wrong to equate the obligations of judges and arbitrators to give reasons as part of the ascription of meaning to the Commercial Arbitration Act, s 29(1)(c). This is so because of my view that so to equate the responsibilities of arbitrators and judges is not in accordance with the content of either s 29(1)(c) or the Model Law ... or with international arbitration practice as reflected by the cases and writing to which I have referred. To the extent that the Court of Appeal in Oil Basins can be seen to have so decided in relation to s 29(1)(c), I am of the respectful view that such view is plainly or clearly wrong and should not be followed."