On 11 March 2015, Formula One driver Giedo van der Garde’s Supreme Court application to have a foreign arbitration award enforced against his racing team Sauber Motorsport AG was upheld by the Victorian Supreme Court.

In this Alert, Senior Associate Stephanie Tan and Law Graduate Marc McCaughey discuss the recent decision and the merits of including arbitration clauses within commercial contracts.

The recent controversy surrounding Formula One and Giedo van der Garde’s (van derGarde) Supreme Court challenge has placed arbitration as a form of dispute resolution back in the spotlight.

Background

In November 2014, van der Garde was told by his racing team Sauber Motorsport AG (Sauber) that he had been replaced in their driving team. Van der Garde brought a complaint to the Swiss Chambers’ Arbitration Institution and in December 2014, Sauber was ordered to refrain from taking any action that would deprive van der Garde of his entitlement to participate in the 2015 Formula One Season as one of Sauber’s two nominated race drivers.

In a bid to be allowed to drive in the Australian Grand Prix in Melbourne on 15 March 2015, van der Garde applied to have his foreign arbitration award (Award) enforced by the Victorian Supreme Court.  On 11 March 2015, the decision of the Swiss arbitration tribunal was upheld[1] and Sauber’s appeal against the decision dismissed on the following day.

Arbitration

Arbitration is a formal dispute resolution process whereby a qualified adjudicator or arbitrator makes an award which is binding on the parties. Commercial contracts will often provide that a dispute is to be referred to arbitration. Arbitration can be a useful alternative dispute resolution process as it settles a matter quickly, privately and in a final and enforceable way.

Each State has its own legislation governing domestic arbitration law with each State Act modelled on a uniform legislative regime. In Western Australia, the relevant legislation is the Commercial Arbitration Act 2012 and in Queensland, the Commercial Arbitration Act 2013. The underlying policy goals of the uniform regime are to minimise the need for courts to get involved and promote finality in arbitral awards.

International arbitration is regulated by a federal statutory regime under the International Arbitration Act 1974 (Cth) (IAA). The IAA is modelled on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention). Under the Convention, an arbitration award issued in any party country can generally be freely enforced in any other party country, subject to limited defences. There are 154 countries which are parties to the Convention.

Case

At the hearing before Justice Croft on 9 March 2015, van der Garde applied under the IAA to have his Award enforced. The respondent in the application was Sauber, with Marcus Ericsson and Luiz Felipe de Oliveria Nasr, Sauber’s current drivers (Other Drivers), also granted leave to be heard, as one of them stood to be replaced if Garde’s application were successful.

The case turned on whether Sauber or the Other Drivers could show that one of the exceptions to enforcement applied in the current circumstances.

Sauber’s Submissions

The Court swiftly dismissed Sauber’s, and the Other Drivers’, submissions that the Award was unenforceable due to procedural errors in the Swiss arbitration.

Sauber then argued that the Award was unenforceable as it was contrary to public policy, putting forward the following submissions that were all rejected by the Court.

  • Having van der Garde race in the Grand Prix with limited training and preparation would pose a danger to the driver and the public. The Court stated that enforcing the Award could not place anyone in danger. The usual safety, training, insurance and other requirements would still apply to ensure the safety of van der Garde and the public.
  • There was a breach of natural justice as a result of the Other Drivers not being given an opportunity to be heard during the arbitral proceedings. The Court referred to the decision of the Full Court of the Federal Court[2] which stated that only a breach of natural justice affecting parties to the arbitration is relevant. There cannot be a breach of natural justice every time someone affected by the outcome of an arbitration is not invited to join and make submissions.
  • The actual conduct required to follow the Award was too uncertain and vague to be translated into a judgment of the Court. The Court did not agree that the negative obligation placed on Sauber was uncertain and held that in any case, any doubts or difficulties could be resolved by seeking assistance from the Court.
  • Enforcing the Award would be futile as the car needed to be modified in order for van der Garde to drive the car, which could not be completed by the date of the Australian Grand Prix. The Court found that a conclusion that the enforcement would be futile would require the Court to enter into a review of the merits of the Award, a process not permitted in applications to enforce foreign awards. The Court further noted that the enforcement of this Award would apply to the whole of the 2015 Formula One Season, not just the Australian Grand Prix.

Conclusions

The Court ruled in favour of van der Garde and enforced the Award. The Court of Appeal subsequently dismissed the appeal on the basis that the Court found no error in the reasons of the initial judge.[3]

Summary

The van der Garde decision is an example of the effectiveness of arbitration awards. With 154 countries signed as parties to the Convention, a legitimate arbitration award has force at an international level. It is clear to see why arbitration clauses are such a common inclusion within commercial contracts and should always be considered as a viable method of dispute resolution. Arbitration allows a matter to be decided quickly and confidentially while being enforceable internationally.