Australia’s Proactive Arbitration Enforcement Regime: A Winning Formula

In recent years the Australian Courts have developed an enviable reputation for adopting a very proactive approach to the enforcement of both Australian and foreign arbitral awards. In particular, the Australian courts have adopted a vigorous approach in seeing off various challenges, many of them unmeritorious, trying to set aside arbitration awards on relatively spurious grounds such as alleged infringing public policy or procedural unfairness. In the process the Australian courts have made it clear that Australian governments both the Commonwealth government in Canberra and the various State governments regard arbitration as a beneficial form of prompt and efficient commercial dispute resolution which is to be encouraged and attempts to stymie arbitrations by unmeritorious challenges are unlikely to succeed in the Australian courts.

This approach has been demonstrated in a variety of cases most of them involving the enforcement of foreign arbitration awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) (NYC). These cases resulted in successful outcomes for the parties seeking to enforce their arbitral award with the enforcement proceedings often being concluded expeditiously and in some cases very expeditiously.

The enforcement of foreign arbitration awards in Australia and the conduct of international arbitration and award enforcement in Australia are governed by the Commonwealth International Arbitration Act 1974 (IAA). Domestic commercial arbitrations and the enforcement of their awards are governed by the Commercial Arbitration Acts of the various States such as the New South Wales Commercial Arbitration Act 2010 (CAA). A domestic award is one where both parties are Australian. An international award is one involving at least one non-Australian party. A foreign arbitral award is one made outside Australia.

Many of these pro arbitration award enforcement judgments have been handed down since 2010 when the IAA was amended and most of the State CAAs were substantially updated.

The IAA and the various State CAAs rely heavily on the UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law). The Model Law applies to international arbitrations conducted in Australia and is also heavily relied on in the CAAs. The IAA and CAAs, as well as the decisions of the courts in recent years especially after amendments to the IAA in 2010, give the Model Law the force of law in Australia and make it clear that the courts will use the Model Law as a template for the conduct of international and domestic commercial arbitrations. Indeed, the Australian courts have made it clear that they will endeavour to achieve harmonisation between the enforcement of domestic arbitral awards and international (including foreign) arbitral awards by utilising the provisions of the Model Law. A very good example of this approach was the decision of the New South Wales Supreme Court in Collin Joss & Co v Qube Furniture in 2015.

There are only a very small number of grounds enabling an award debtor to apply to a court in Australia to set aside an arbitral award. These grounds are largely procedural and are based on the grounds in article V of the NYC and include grounds such as breach of public policy, procedural unfairness, the absence of an actual agreement to arbitrate or the absence of a proper subject matter for arbitration. Interestingly the IAA has narrowed the public policy ground to apply only to awards induced or affected by fraud or corruption or where there is a breach of the rules of natural justice in the making of an award. The grounds for challenging enforcement of foreign awards are set out in section 8 of the IAA. Importantly section 39 of the IAA requires the enforcing court to have regard to the objects of the IAA and the fact that arbitration is an efficient, impartial, enforceful and timely method by which to resolve commercial disputes, and the awards are intended to provide certainty and finality. This legislative requirement has encouraged the Australian courts to adopt a proactive approach to arbitral award enforcement and to adopt a narrow approach to the grounds of setting aside awards where the party challenging the award has a significant evidentiary burden of proof albeit on the balance of probabilities. Amendments to the IAA in October 2015, although largely procedural, are likely to re-enforce these objectives.

As a consequence, the Australian courts are reluctant to intervene in arbitration and are content to leave the conduct of arbitration in the hands of the tribunal. This was demonstrated by the decision of the Federal Court in the 2015 case Sino Dragon v Noble Resources, in which the court declined to usurp the tribunal’s function of ordering disclosure of documents.

Nowhere has the proactive approach of the Australian courts to enforce foreign arbitral awards been better demonstrated than in the high profile enforcement proceedings which emerged during the 2015 Australian Grand Prix Formula One race involving a dispute in the week leading up to the race between one of the racing teams (Sauber Motorsport AG) and one of its drivers Giedo van der Garde. Mr van der Garde had obtained an arbitral award in Switzerland under the Swiss International Arbitration Rules after he had been removed from his position as a test driver for the Sauber team at the end of 2014. He alleged he had been offered a race seat for the 2015 season which Sauber disputed. The arbitral tribunal found for Mr Van der Garde. The award required Sauber to honour its contractual obligation to nominate Mr Van der Garde as one of their two race drivers for the forthcoming season. The award provided that Sauber must refrain from taking any action which would have the effect of depriving Mr Van der Garde his entitlement to participate in the 2015 Formula One racing season as one of Sauber’s two nominated racing drivers.

Sauber in the meantime contracted with two other drivers because they offered more sponsorship opportunity for Sauber. Not wanting to lose the sponsorship Sauber decided to prevent Mr Van der Garde from driving for Sauber.  Mr Van der Garde relied on the award to launch enforcement proceedings in the Victorian Supreme Court in March 2015, just days before the commencement of the race. As Australia and Switzerland are parties to the NYC (along with over 150 other countries) Mr Van der Garde’s award was enforceable as a foreign arbitral award under the IAA. The enforcement hearing took place on Monday, 9 March 2015 with the race scheduled to take place the following Sunday. Sauber put forward four reasons under section 8 of the IAA in support of their argument that the award should be set aside including that the award was outside the scope of the submission to arbitration, that the wording of the award involved too much uncertainty, that the award would jeopardise safety during the race because Mr Van der Garde had not driven a Sauber car during the 2015 season, and because the award adversely affected the rights of the two other drivers who were not parties to the arbitration, although they were granted leave to appear in the court proceedings. The primary judge made an order adopting the same wording as the award to enforce the award as a judgment of the court.

The Sauber team immediately launched an appeal against the order of the primary judge even though the first practice session of the race would begin in three days. In effect the appeal was a repeat of Sauber’s arguments before the primary judge. The appeal was heard very expeditiously by the Victorian Court of Appeal on Thursday, 12 March. The Court of Appeal dismissed Sauber’s appeal comprehensively. The Court of Appeal said that to establish that the enforcement of the award would be contrary to public policy due to a breach of natural justice what must be shown is real unfairness and real practical injustice. The Court of Appeal said that errors of fact or law are not a legitimate basis for intervention in such cases. The Court of Appeal took the view that Sauber’s case to set aside the award was essentially a legal or factual argument “dressed up as a complaint about natural justice” which cannot be the subject to a valid objection to award enforcement. Similar findings and judicial comments have been made by other Australian courts in rejecting challenges seeking to set aside the enforcement of foreign (and Australian) arbitral awards).

The Court of Appeal rejected the alleged unsafe activity arguments mounted by Sauber on the basis that Formula One racing is highly regulated and the race organisers would ensure all safety requirements would be met, especially as nobody from the race organisers gave any independent evidence about the issue of safety. Sauber’s other arguments were also rejected.

As soon as the appeal was handed down in favour of Mr Van der Garde he launched contempt of court proceedings against Sauber. Tactically this was a very important step to take because it entitled him, if successful, to seize Sauber’s assets.

Not surprising this combination of the successful court orders enforcing the award in favour of Mr Van der Garde and the contempt proceedings led to the parties entering into commercial negotiations immediately. Overnight negotiations led to the contempt application being dropped and the team raced with considerable success on the Sunday with the two other drivers as it was apparent that Sauber had not proceeded with Mr Van der Garde’s driving application in time to allow him to race. Mr Van der Garde came out the real winner with his contract with Sauber being cancelled and he being reportedly paid the sum of approximately € 15 million to bring an end to his legal proceedings.

The Sauber case was an unusual application of the NYC and the IAA to bring finality to a bitter commercial dispute albeit in the sporting arena. However, it demonstrates the flexibility which Australian courts will be prepared to adopt to give effect to a foreign arbitral award where the court perceives that the objections to enforcement of the award are spurious and commercially motivated notwithstanding how much money and determination is thrown into the challenge to the enforcement of the award. The expedition with which the enforcement proceedings were conducted and concluded including the related contempt proceedings leading to a negotiated commercial compromise was quite remarkable in the circumstances and whilst this timeframe is atypical, it demonstrates that in the right case the Australian courts will move extremely quickly to enforce an arbitral award.

More typically enforcement of foreign (and for that matter Australian international and domestic) arbitral awards tend to involve more traditional commercial disputes such as those involving shipping, commodities, telecommunications, resources and investment projects. Arbitral awards handed down in Mongolia and Uganda as well as more traditional seats of arbitration such as London, Paris, Singapore and Hong Kong have been enforced by Australian courts despite the “usual” challenges alleging breach of public policy or some form of procedural unfairness. One unsuccessful challenger even alleged that the LMAA arbitrators in a London shipping arbitration were not “commercial” men as they were lawyers and hence the arbitration was invalid as the arbitration agreement called for arbitration by “commercial” men. The Federal Court rejected that challenge.

To support arbitration Australian courts have demonstrated their willingness to provide interim relief in the form of security such as freezing orders over assets held by an award debtor in Australia pending the outcome of award enforcement proceedings and in one case recently pending the determination of court proceedings in Singapore (see the judgment of the High Court in Bayan Resources v BCBC Singapore decided in 2015). The Australian courts emboldened by the clear legislative intent in the IAA, the Model Law, and the CAAs, will not lightly allow award debtors to escape enforcement and pending the conclusion of enforcement proceedings will stay any court proceedings brought in breach of an arbitration agreement, may order security he provided by the award debtor both in Australia and on a worldwide basis and might require an overseas award debtor to provide security for costs for a challenge to enforcement of the foreign arbitral award in Australia. These are some of the remedies available in Australian courts at an interlocutory or final stage to give effect to Australia’s international obligations as enshrined in the IAA.

Australia is clearly a place where arbitration is favoured by the legislature and the judiciary as a desirable form of commercial dispute resolution, a trend which is only likely to increase. Australia’s recent adoption of many Free Trade Agreements with countries particularly in the Asia Pacific region is likely to see an increase in investor/state disputes being resolved in arbitration, including in the recently signed Trans Pacific Partnership where Australia is one of the 12 signatories.

Parties wishing to enforce arbitration agreements or enforce arbitration awards will find a willing ally in the Australia courts, whether the disputes are resolved in Australia or abroad or the awards are made abroad or in Australia. Either way Australia is a very good place to enforce your arbitration agreement or award. Unlike many jurisdictions the successful party to such proceedings in Australia will invariably be awarded its legal costs.

Derek Luxford

Derek Luxford

Partner at Hicksons

Email: [email protected]
Tel: +61 2 9293 5474

Derek Luxford is a partner at Sydney law firm Hicksons, where he heads its Transport, Trade and Energy practice. Derek joined Hicksons in 2004 following some 20 years at a large national law firm. Derek acquired his interest in shipping law during a previous 5 year stint in London. Derek acts for Australian and overseas clients across the spectrum of shipping, trade and energy. He is a regular speaker at industry functions and a regular contributor to industry publications. His practice covers both transactional work and commercial dispute resolution. Derek is an arbitrator and a member of many industry bodies in the shipping, logistics and marine insurance industries in Australia and abroad.

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About Derek Luxford

Email: [email protected]
Tel: +61 2 9293 5474
Derek Luxford is a partner at Sydney law firm Hicksons, where he heads its Transport, Trade and Energy practice. Derek joined Hicksons in 2004 following some 20 years at a large national law firm. Derek acquired his interest in shipping law during a previous 5 year stint in London. Derek acts for Australian and overseas clients across the spectrum of shipping, trade and energy. He is a regular speaker at industry functions and a regular contributor to industry publications. His practice covers both transactional work and commercial dispute resolution. Derek is an arbitrator and a member of many industry bodies in the shipping, logistics and marine insurance industries in Australia and abroad.