The recent case of Armada (Singapore) Pte Ltd (under judicial management) v Gujarat NRE Coke Limited (17 June 2014) has provided another example of the Australian courts’ approach to a challenge to the enforcement of an arbitral award. The Federal Court of Australia decision upheld the principal of finality and certainty in arbitration awards, by enforcing a foreign arbitral award under the International Arbitration Act 1974 (Cth) (IAA). The decision should give comfort to international commerce that Australia is now an arbitration friendly place.
In October 2007, the applicant (Armada) and the respondent (Gujarat) entered into a contract under which Gujarat agreed to ship and Armada agreed to provide tonnage for the transportation of six cargoes of coking coal annually for each year from 2008 to 2012.
In June 2009, Armada was placed under judicial management by the High Court of Singapore1, after which Gujarat ceased to perform its obligations under the contract. Armada commenced arbitration in London pursuant to an arbitration clause in the contract. The arbitration clause provided that any dispute should be referred to three “commercial men”, one each appointed by Armada and Gujarat and the third to be appointed “by the two so chosen”.
The arbitrators made three partial final awards during 2011.
Under the first award, they declared that they had substantive jurisdiction to determine the dispute. Under the second, they found that Gujarat had breached the contract and was liable in damages to Armada. They also declared that Armada would be entitled to damages in respect of any future shipments which Gujarat failed to perform. In the third award, the arbitrators determined the damages to which Armada was entitled. HFW London Partner, Brian Perrott, acted for Armada in that arbitration.
Armada then commenced proceedings in the Federal Court of Australia to enforce the awards. The issues before the Court were:
- Whether Armada had satisfied the requirements for enforcement of a foreign award under ss 8(3) and 9 of the IAA.
- Whether Gujarat had made out any of the grounds under ss 8(5) or 8(7) of the IAA for the Court to refuse to enforce the awards.
The Court found that pursuant to s 9 of the IAA, production of the awards and the arbitration clause to the Court meant that Armada had a prima facie entitlement to enforcement under ss 8(3). In order successfully to resist their enforcement, Gujarat had to make out one of the grounds under ss 8(5) or 8(7) of the IAA (which enact articles v1. and v2. of the New York Convention in Australia.)
Gujurat argued first that the arbitrators appointed by Armada and Gujarat – two prominent QCs – were not “commercial men” within the meaning of the arbitration clause and therefore,
- The awards were not made by a tribunal which was operating under the arbitration agreement before the Court.
- The composition of the arbitral tribunal was not in accordance with the parties’ agreement.
The Court held that the arbitrators were “commercial men” for the purposes of the arbitration clause. Each had considerable experience in arbitrating commercial disputes and both were members of a reputable professional association which regularly appointed arbitrators to determine disputes. The fact that they were lawyers did not disqualify them from being “commercial men”. Further, the parties had agreed to the appointments: Gujarat had waived its right to insist on the appointment of “commercial men” and had either waived its right to object to Armada’s appointment, or was estopped from challenging it.
In relation to the enforcement of the second award, Gujarat argued that:
- The second award had not become binding in relation to Gujarat’s future breaches, because the arbitrators’ declaration purported to bind the parties in the future in relation to contractual damages at a time when the relevant damages had not been suffered.
- Enforcement of the second award in respect of Gujarat’s future breaches would be contrary to the public policy of Australia.
The Court noted that, since commencement of the proceedings, at least one further award dealing with additional damages had been made. In those circumstances, it was appropriate to give Armada liberty to apply to amend its Originating Application to seek enforcement of any additional awards.
Notably, the Court found that enforcing the arbitrators’ declaration would not be contrary to the public policy of Australia. This was consistent with other decisions2 in which the Court had held that the whole rationale of the IAA, and thus the public policy of Australia, is to enforce foreign awards wherever possible, in order to uphold contractual arrangements entered into in the course of international trade, and to support certainty and finality in international dispute resolution.
This decision should be seen as part of the changing landscape in Australian arbitration. It is one of a number of recent decisions where Australian courts have been asked to enforce foreign arbitration awards under the New York Convention and have done so. These include Coeclerici Asia v Gujarat NRE Coke3(a 2013 decision in the Federal Court’s New South Wales Registry in which HFW acted for the applicant) and, more recently, International Relief and Development v Ladu4 (an August 2014 decision in the Federal Court’s Victorian Registry). Australia’s obligation to enforce foreign arbitration awards is given effect by clause 8(3) of the IAA. One of the key objects of the IAA is to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce5. This case, and in particular the Court’s decision to grant leave to Armada to amend its Originating Application to add awards of damages which only became effective after the initial application to the Court was made, reflects this objective.