On 22 December 2014, the Full Court of the Federal Court in Elders International Australia Pty Ltd v Beijing Be Green Import & Export Co Ltd (court file number, NSD 1282 of 2014)1 reaffirmed the ‘pro-arbitration’ approach of Australian courts, by denying the use of processes under the Federal Court Rules to delay the recognition and enforcement of a foreign arbitral award.

Significance

The Full Court’s decision indicates that courts will be reluctant to stay judgments made under theInternational Arbitration Act 1974 (Cth) (IAA) to recognise and enforce foreign arbitral awards, though there has been no rule set that a stay will never be granted.

The decision confirms Australia as a ‘pro-arbitration’ jurisdiction and should give parties greater confidence as to the ability to enforce international arbitral awards in Australia without delay.

Background

King & Wood Mallesons represented Beijing Be Green Import & Export Co Ltd (Beijing Be Green) in seeking the recognition and enforcement of a China International Economic and Trade Arbitration Commission (CIETAC) arbitral award in its favour against Elders International Australia Pty Ltd (Elders).

Elders did not resist the recognition of the award in Australia on any of the grounds in section 8 of the IAAand a judgment was entered to enforce the award. Elders instead applied for a stay of the judgment under the Federal Court Rules 2011 (Cth). The basis put forward for the stay was that justice required the determination of separate arbitration proceedings brought by Elders against Beijing Be Green in China. Elders claimed the separate arbitration was likely to result in an award in its favour for a sum greater than the award being enforced and Elders would then be entitled to a ‘set-off’. There would therefore be an injustice, given the totality of the business relationship, if Elders was required to comply with the award before it had the opportunity to vindicate its rights. This argument was pursued as a basis for the stay even though Elders had also successfully argued this as its only defence to Beijing Be Green’s claim to payment. The CIETAC tribunal had held, however, as the claim arose under a separate unrelated contract, it did not have jurisdiction over the claim nor did the claim meet the requirements for a ‘set-off’ under Chinese law, the applicable substantive law.

Elders also argued that a factor in favour of granting a stay was that recognition and enforcement of arbitral awards in China was a difficult process (referring to the case of TCL Air Conditioning (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5, as evidence of this) and that even if Beijing Be Green were willing to satisfy an award in Elders’ favour, currency control regulations restricted its ability to transfer funds out of Mainland China.

Elder’s application was dismissed. The Court considered that ‘[w]hen appropriate weight is given to the circumstance that the Award was the result of an arbitral process into which the parties had freely and voluntarily entered through their commercial agreements, the refusal of the stay became inevitable.’2 The Court did not accept that there was evidence before it of enforcement difficulties in Mainland China.

Elders sought leave to appeal to the Full Federal Court, this application was also unsuccessful.

Decision of the Full Court

Elders sought leave to appeal on a numbering of bases alleging that the law had been incorrectly applied, including by:

  1. considering the provenance of the judgment, being an international arbitration award (the result of a process the parties had freely and voluntarily entered into);
  2. finding that granting a stay of the judgment would undermine the effective enforcement of the award;
  3. not giving Elders’ separate arbitration and set-off claim enough weight; and
  4. not considering the substantial injustice caused to Elders by refusing to grant a stay.

In oral submissions before the Full Court, Elders did not pursue the claim that there were enforcement difficulties in respect of arbitral awards in Mainland China.

The Full Court did not grant Elders leave to appeal the decision. Key points from the Court’s oral reasons are:

  • There was no injustice to Elders in refusing to stay the judgment where an arbitration under a separate contract, albeit between the same parties, was ongoing. The parties had not entered into an umbrella agreement governing the entirety of their business relationship, and the Court was obliged to hold the parties to the dispute resolution process that they had agreed upon.
  • If Elders wished to challenge the findings of the CIETAC tribunal in relation to its claimed set-off or counter-claim, the appropriate place to bring the challenge was at the Court of the seat of the arbitration (Beijing, China), not where the award was sought to be recognised and enforced. Elders had not done so and the Court was then faced with a scenario in which under the contract between the parties, their chosen arbitral tribunal had awarded Beijing Be Green a sum of money in relation to which there was no dispute other than the refusal of the CIETAC tribunal to recognise jurisdiction over the asserted counter-claim or set-off.
  • The provenance of the judgment was clearly a matter able to be taken into account when considering whether to grant a stay of the judgment. In this instance, given sections 2D and 39 of the IAA, there was a clear and express public policy to facilitate the enforcement of international arbitral awards and international trade and commerce more broadly. Awarding a stay would, however, delay enforcement.