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Ignorance is not bliss in a pro-arbitration jurisdiction – the enforcement of foreign arbitral awards in Australia

06 October 2020

#Dispute Resolution & Litigation

Published by:

Ushna Bashir

Ignorance is not bliss in a pro-arbitration jurisdiction – the enforcement of foreign arbitral awards in Australia

The saying that Australia is a ‘pro-arbitration’ jurisdiction is not in doubt and a series of court decisions have made this unambiguously clear.

Australian courts are cautious to intervene in the arbitration process, an attitude founded in the adoption of the United Nations Conference on International Commercial  Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the New York Convention) and the UNCITRAL Model Law (Model Law) in Australian arbitration legislation, including the Commonwealth International Arbitration Act 1974 (IAA) under which foreign arbitral awards are recognised and enforced.

A key element of the Model Law scheme is the finality of an arbitration award, meaning that there is limited recourse available to challenge awards, and the enforcement of awards. There is no right of ‘appeal’ as such and recourse is limited to the ‘procedural fairness’ grounds set out in the legislation and the Model Law.

Various decisions of Australian courts have made clear that courts retain a discretion whether to set aside an award, even if a ground for setting aside is established. The court will ask whether the party seeing to set aside has demonstrated real unfairness or real practical injustice in how the arbitration was conducted. 

The same applies to the enforcement of foreign awards, as demonstrated by the Federal Court in Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116.

 The Arbitration in Energy City Qatar Holding Company v Hub Street Equipment

Energy City Qatar Holding Company (ECQ) and Hub Street Equipment (Hub) entered into a contract for the supply and installation of street lighting and street furniture in Qatar. ECQ made an advance payment to Hub but then decided not to proceed with the contract. ECQ sought repayment of these funds but Hub retained the money for four years.

The contract contained an arbitration clause under which the parties were to refer any disputes they could not amicably settle to arbitration, in accordance with the rules of arbitration in Qatar. The arbitration clause also stipulated that an arbitration committee was supposed to be formed with each party appointing a member within 45 days of receiving written notice of proceedings.

ECQ commenced arbitration proceedings through the Qatari Plenary Court, which followed its own arbitration procedure under the relevant national laws – including appointing an arbitral tribunal. ECQ notified an unrelated company in Qatar of the court proceedings, which forwarded these to an agent of Hub. The agent then provided them to the directors of Hub in Australia. Hub took no action with regards to these notices and the tribunal ultimately issued a default award in Hub’s absence. ECQ sought to then enforce this award in Australia.

Hub’s arguments for resisting enforcement of the award

Hub relied on the grounds set out in section 8(5) of the IAA and Article 35 of the Model Law, forming Schedule 2 of the IAA. Hub argued that the Federal Court should not enforce the foreign award in Australia because:

  1. Hub did not receive proper notice of the appointment of the arbitrator.
  2. Hub did not receive proper notice of the arbitration proceedings.
  3. Hub was unable to present its case in the arbitration proceedings.
  4. The composition of the arbitral authority was not in accordance with the contract.
  5. The arbitral procedure was not in accordance with the contract, including having been carried out in Arabic.
  6. The arbitral award involved a breach of the rules of natural justice and would be contrary to public policy to enforce.

Procedural irregularities

The Court rejected arguments pertaining to notice because it found that Hub did in fact have actual notice of the proceedings at multiple stages which it chose to ignore. In such circumstances, enforcement of the award made in its absence was found to not constitute a breach of the rules of natural justice or contrary to public policy.

The fact that the arbitration was conducted in Arabic was found to not be an injustice where Hub ignored notices that were sent in English and where there was in evidence a certified English translation.

The key issue considered was ground 4 (see above), as the Qatari Plenary Court of First Instance had ordered the composition of the tribunal as per the Qatari Civil and Commercial Code of Procedure, which provided at Article 195 that:

“If a dispute arises between the parties prior to an agreement between them as to the arbitrators…the court which has jurisdiction to consider the dispute shall appoint the necessary number of arbitrators at the request of one of the parties.”

The Court found that ultimately, the contract between the parties was governed by Qatari law. The circumstances fell within Art 195 of the Qatari legislation and thus authorised the Plenary Court to appoint a tribunal. Hub had failed to prove that the contract or Article 195 did not operate in this way.

Jagot J held that while a ground for setting aside the award under Article 34(2)(iv) may have been established, the Court retained a discretion. In this case, there was no unfairness to Hub. Proving a breach of natural justice is a high bar and the conduct of Hub, in ignoring the notices, did not work in its favour in arguing this ground. The Court concluded that the arbitration proceedings were in accordance with the agreement of the parties to the extent it was governed by the law of Qatar.

Was Australia the best place to ‘challenge’ the arbitral award?

The court ordered that the foreign award was to be enforced as if were an order of the Federal Court.

While it was not canvassed in the Federal Court’s judgment, and assuming (as the judge found) that Hub had actual knowledge of the arbitration proceedings and award, Hub most likely also had a right to apply to the Qatar court to set aside the award. Under the Model Law (on which the Qatar arbitration law is based) a dissatisfied party has three months in which to make an application for setting aside. 

Whether Hub may have been successful before the Qatari Plenary Court is a question for thought. It is also a reminder for parties when drafting dispute resolution clauses to consider the law (or laws) governing the contract and the arbitration agreement and think practically about the ‘seat’ of the arbitration and any consequences associated with that choice. 

It also raises the interesting question as to the interaction of the right to apply to the court of the ‘seat’ (in this case, Qatar) for setting aside, and the right to resist enforcement (in this case, the Australian Federal Court) – are these remedies cumulative, or alternatives? In other words, could Hub have resisted enforcement in Australia even if it had unsuccessfully applied to set aside the award in Qatar?

The answer is not clear. Some decisions of the Singapore courts suggest that the options are exclusive rather than cumulative, based on the notion of comity and respect for the decision of the court of the ‘seat’.  

Conclusion

Australia is clearly a desirable seat for arbitration by virtue of its adoption of the Model Laws and support for the autonomy of the arbitration process. Parties need to participate in the arbitration process with this in mind, ensuring they familiarise themselves with the dispute resolution clause in their agreement and strictly comply with any procedural requirements. Ultimately, the court retains an overall discretion and clearly will not take a challenge to arbitral decisions lightly.

Authors: Geoff Farnsworth & Ushna Bashir

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The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Ushna Bashir

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