Last week the Civil Law and Justice Legislation Amendment Bill 2017 (Cth) (Bill) was introduced into the Senate and received its second reading speech. The object of the Bill is to ‘make minor and technical amendments to civil justice legislation’ and it proposes amendments to various Commonwealth legislation including the International Arbitration Act 1974 (Cth) (IAA). A closer inspection of the proposed amendments to the IAA reveals that the relevant amendments to the IAA are anything but ‘minor and technical’.

There are four key proposed amendments to the IAA. These are succinctly and somewhat deceptively summarised in the explanatory memorandum to the Bill as:

  • clarifying the procedural requirements for enforcement of an arbitral award
  • specifying expressly the meaning of competent court for the purpose of the UNCITRAL Model Law1
  • clarifying the application of the confidentiality provisions to certain investor-state arbitrations, and
  • modernising the provisions governing arbitrators’ powers to award costs in international commercial arbitration proceedings.

In relation to these proposed amendments, Senator the Honourable George Brandis QC stated in his second reading speech that the Bill:

‘reflects the Government's commitment to maintain its place in the international legal environment by amending the International Arbitration Act to help ensure that Australian arbitral law and practice stay on the global cutting edge, so that Australia continues to gain ground as a competitive arbitration friendly jurisdiction.’

The following analysis of the proposed amendments identifies the significance of these proposed changes to the IAA.

Clarifying procedural requirements for enforcement This summary is probably the most understated of the four proposed amendments. This Bill proposes amending the language in sections 8(1) and 8(5)(f) of the IAA to clarify that a foreign award is binding between the ‘parties to the award’, rather than between the ‘parties to the agreement pursuant to which the arbitration award is made’, which is the current language in section 8.

The reference to enforcing an award against a party to the arbitration agreement, as opposed to the parties to the award, is in contrast to equivalent legislative provisions in leading international arbitration jurisdictions such as the United Kingdom, Singapore and Hong Kong.

The current wording of this provision has resulted in contradicting Australian case law. The Victorian Supreme Court of Appeal has held that section 8(1) as it is currently formed imposes a legal onus on the party seeking to enforce the award (Award Creditor) to prove that party which must pay the award (Award Debtor) is a party to arbitration agreement2. However, Justice Foster, the Arbitration Co-ordinating Judge in the Sydney Registry of the Federal Court of Australia has held that the Award Creditor need only produce the award and the alleged agreement upon which it relies in order to meet the evidential requirements of section 9(1), even if the Award Debtor is not a named party to the arbitration agreement.3

This addresses the emergence of joinder and consolidation in arbitration proceedings where there are multi-party or multi-contract proceedings. Many arbitration institute rules have recently been revised to accommodate joinder and consolidation. The recognition and enforcement of an award between parties to the award, as opposed to the parties to the agreement, is a practical and sensible approach which should be adopted in the IAA.

This clarification should be welcomed as it acts to remove a potential unnecessary procedural step which would require the Award Creditor to demonstrate that the award does in fact bind the Award Debtor. It brings the IAA into line with international best practice and reinforces the approach taken by Justice Foster as the approach to be adopted throughout all Australian jurisdictions.

Unlike the remainder of the proposed amendments to the IAA, if these amendments enter into force, they would apply to arbitral proceedings regardless of whether those proceedings commenced before these amendments are enacted. The other amendments to the IAA would only apply to arbitration proceedings commenced after the Bill is enacted.

Specifying the meaning of ‘competent court’ Article 6 of the Model Law, requires the functions referred to in certain Articles of the Model Law to be performed by the court(s) as specified by each State enacting the Model Law. Australia has specified the courts for the purposes of Article 6 as the supreme court of the state or territory which is (or is to be) the place of the arbitration, or in any case, the Federal Court of Australia.

This specification works well for articles 11(3), 11(4), 13(3), 14, 16(3) and 34(2) which are identified in article 6 of the Model Law and all use the phrase ‘the court or authority specified in article 6’ to designate power to the relevant Australian court.

However, the following articles do not refer to ‘the court or authority specified in article 6’ and instead designate power to ‘the competent court’:

  • article 17H – recognition and enforcement of interim awards
  • article 27 – court assistance in taking evidence
  • article 35 – recognition and enforcement of awards, and
  • article 36 – grounds for refusing recognition or enforcement of awards.

There is no definition of ‘competent court’ in the IAA or the Model Law, which has caused the question of jurisdiction to arise when a party has sought to engage the court’s power in relation to these provisions.4

The Bill seeks to introduce amendments which would clarify this ambiguity by stating that if the taking of evidence or the recognition or enforcement of awards (interim or otherwise) is to take place in a state or territory, then the supreme court of that state or territory is a competent court, or in any case, the Federal Court of Australia is a competent court.

This is another welcome amendment which would apply to arbitration proceedings commenced after the Bill is enacted. Until then, parties seeking to rely on these provisions will need to rely on the common law to establish that the relevant court is a competent court to exercise jurisdiction.

Clarifying the application of confidentiality provisions The amendments proposed to the confidentiality provisions in the IAA intend to exclude the application of these provisions where the Transparency Rules 5apply. The application of the Transparency Rules is governed by the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (2014) (Mauritius Convention). The relevance of this clarification to the application of the confidentiality provisions in the IAA is currently limited.

Firstly, Australia is not a party to the Mauritius Convention. Parties to the Mauritius Convention agree to apply the Transparency Rules where both the State and the claimant investor’s State are parties to the Convention or where the investor agrees to their application. As Australia is not a party to the Mauritius Convention, the Transparency Rules do not apply where Australia is the respondent State in an investor-state arbitration or where the claimant investor is Australian.

Further, even if Australia becomes a party to the Mauritius Convention, the Transparency Rules only apply to investor-State arbitrations commenced pursuant to a treaty concluded after 1 April 2014 and where that treaty provides for arbitration under the UNCITRAL Rules. At the time of writing, this means that the Transparency Rules could only apply to an investor-State arbitration involving Australia or an Australian investor under the Korea-Australia Free Trade Agreement, and only if Australia signs up to the Mauritius Convention. In addition, Korea would also need to become a signatory to the Mauritius Convention as it is not presently a party.

One way in which the clarifications to the confidentiality provisions could have a role to play now is where parties to an investor-state arbitration, to which the Transparency Rules apply, agree to Australia as the seat of the arbitration. The IAA would then give the appropriate framework in which the Transparency Rules could operate.

The amendments affecting the applicability of the confidentiality provisions would apply to arbitration proceedings commenced after the Bill is enacted.

Modernising arbitrators’ powers to award costs Finally, the Bill proposes amendments to remove reference to the taxation of costs in international arbitration. The Explanatory Memorandum states that references to taxing costs are ‘outmoded and inflexible in contrast to current practice in international arbitration’.

Instead, the IAA would simply provide that the tribunal may, in making an award, settle the amount to be paid by whom and in what manner.

This is a ‘minor and technical’ amendment that would apply to arbitration proceedings commenced after the Bill is enacted and would allow a tribunal to settle costs in a manner it deems appropriate.

What this all means Further consideration of the Bill has been adjourned until 9 May 2017. Once the Bill is agreed to by both the Senate and the House of Representative, it can receive Royal Assent following which, the Bill will become law.

If this Bill is enacted, it will assist in bringing the IAA into line with best practice in international arbitration and the promotion of Australia as an arbitration friendly jurisdiction.