Understandably, parties which choose international arbitration as the means to resolve disputes between them want to ensure that a resulting arbitral award will be final and enforceable.
Whilst parties to an arbitration agreement can choose the how, when, where and what law will apply to the arbitration, where an award is sought to be enforced will be determined by where assets are located. Therefore, the law and approach to enforcing international arbitration awards in the jurisdiction where the assets are situated is critical to a party's ability to enforce an arbitration award.
Past decisions of the Australian courts led some to question whether they could be certain an arbitration award would be enforceable in Australia. While Australia is a signatory to the New York Convention these decisions gave rise to a perceived uncertainty that the Australian courts may not interpret Australian law in a way that was consistent with the intention of the New York Convention.
In July 2010, Australia's international arbitration legislation, the International Arbitration Act 1974 (IAA), was amended to address this perception along with other matters. This article considers the effectiveness of the amendments in light of recent decisions.
The grounds for refusing to enforce an arbitral award, provided for in Article V of the New York Convention, were intended to be exhaustive, such that a refusal to enforce an international arbitral award could only occur if one of the grounds in Article V was made out. The principle underpinning Article V is that arbitral awards should be enforced unless the award conflicts with fundamental principles of law and justice in the enforcing state. Prior to the 2010 amendments, section 8(5) and (7) of the IAA replicated the grounds in Article V. However, uncertainty arose when it was decided in an Australian Court that these sections did not provide an exhaustive list, and found that an Australian court had a general discretion to refuse to enforce an arbitral award even if none of the grounds in sub-sections 8(5) or (7) were present.
The amendments to the IAA relating to enforcement of awards go to address any previous inconsistency between the Act and the Convention as regards enforcement. They clarify what constitutes a conflict of Australian public policy in the enforcement of an arbitral award and provide the courts with guidance in the interpretation of the enforcement provisions (as well as the Act generally). This is achieved by:
- inserting a new subsection 8(3A) that states that a court may only refuse to enforce the arbitral on one of the grounds detailed in subsections 8(5) and (7);
- specifying that the ground for refusal of enforcement on the basis it is 'contrary to public policy' includes where the making of the award was induced or affected by fraud or corruption, or where a breach of the rules of natural justice occurred in connection with making the award; and
- detailing the objects of the Act, which include facilitating the recognition and enforcement of arbitral awards made in relation to international trade and commerce; giving effect to the UNCITRAL Model Law on International Commercial Arbitration, and giving effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The IAA goes further and gives the Australian courts specific guidance on how they should interpret the IAA. Section 39(2) of the IAA requires the court, when considering whether to enforce or refuse to enforce a foreign award, to do so having regard to:
- the objects of the Act; and
the fact that:
- arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and
- awards are intended to provide certainty and finality.
The amendments to the IAA provide that the list of grounds to refuse to enforce an arbitration award under the IAA is indeed exhaustive and that a court must, when applying any of these grounds, take an approach that is consistent with the objects and stance outlined above.
RECENT CASE LAW
So, how have these provisions been applied by Australian courts?
In Uganda Telecom v Hi-Tech Telecom Pty Ltd (2011) 277 ALR 415;  FCA 131, Uganda Telecom contracted to provide telecom services to Hi-Tech. Uganda Telecom commenced arbitral proceedings, alleging Hi-Tech failed to provide a guarantee or pay invoices. Hi-Tech did not respond to the request for arbitration and an award was made in Uganda Telecom's favour, which then applied to the Federal Court of Australia to register the award as a judgment.
In the proceedings, Hi-Tech argued, amongst other things, that the court can enquire as to the correctness of the arbitral award to determine whether it is contrary to public policy or under the Court's general discretion to refuse enforcement. The Court held:
- the amendments to the IAA make it clear that the Court has no general discretion to refuse enforcement; and
- public policy considerations have been clarified in the amendments to the IAA and do not provide a basis for re-opening the merits of the arbitration. The Court's power to refuse enforcement on the basis of public policy 'should be narrowly interpreted' and not exercised on the basis of 'erroneous legal reasoning or misapplication of the law' by the arbitrator.
In Altain Khuder LLC v IMC Mining Solutions Pty Ltd (2011) 276 ALR 733;  VSC 1 the Supreme Court of Victoria considered the enforcement of an award from proceedings held in Mongolia.
Altain Khuder contracted with IMC Mining to prepare mine plans, operating plans and budgets in connection with an iron ore mine in Mongolia. Altain Khuder commenced arbitration proceedings against IMC Mining for not carrying out its obligations under the contact. There was some dispute regarding the identity of the party named as IMC Mining Inc and the involvement of IMC Mining Solutions. The arbitral proceedings, held in Mongolia, resulted in an order of approximately US$5.9 million against IMC Mining, stated to be paid by IMC Mining Solutions. Neither IMC Mining nor IMC Mining Solutions appealed the orders against them.
Altain Khuder commenced enforcement proceedings against both IMC Mining and IMC Mining Solutions in the Supreme Court of Victoria after both companies failed to pay. Enforcement orders were issued by the Court giving the defendants 42 days to apply to set the orders aside. IMC Mining Solutions applied to set aside the orders. At first instance, the Supreme Court of Victoria held that the application could only succeed if it established one of the recognised grounds of resisting enforcement in the IAA, and IMC Solutions failed to establish any of the grounds.
The matter was appealed to the Victorian Court of Appeal: IMC Aviation Solutions Pty Ltd v Altain Khuder LLC  VSCA 248. The primary issue was whether enforcement of an award could be resisted on the ground that an award debtor was not a party to the arbitration agreement. The Court of Appeal held that it could, and that this arose not by one of the defences in sections 8(5) or 8(7), but due to a preliminary jurisdictional requirement interpreted to be contained in section 8(1), that the person the award is sought to be enforced against was a party to the arbitration agreement. The onus of establishing the jurisdictional requirement rests with the person seeking to enforce the award. The question is one to be determined by the Court, who is not bound by any finding by the arbitrator on that point.
The jurisdictional prerequisites identified by the court for enforcement of an award were:
- an award has been made by a foreign arbitral tribunal granting relief to the award creditor against the award debtor;
- the award was made pursuant to an arbitration agreement; and
- the award creditor and the award debtor are parties to the arbitration agreement.
If these prerequisites are established, a party is limited to the defences set out in sections 8(5) and 8(7) of the IAA. In other jurisdictions, courts have also recognised the requirement that the award creditor and debtor be parties to the arbitration agreement, however this has been treated as falling within one of the defences outlined in under Article V, rather than as a jurisdictional point (which affects which party bears the onus of proof).
The amendments to the IAA should address the previous perceived uncertainty regarding the existence of a general discretion among Australian courts not to enforce a foreign arbitration award. Separate to the question of the existence of a general discretion, the amendments also clarify the defences that can be raised by an award debtor facing an enforcement action. However, the decision in Altain demonstrates that issues going to the jurisdiction of an arbitration must still be considered by parties who want to be in a position to enforce a foreign award in Australia. This reinforces the importance of dealing with jurisdictional issues during the course of the arbitration rather than at the enforcement stage.
The authors wish to acknowledge the assistance of Lauren Bulitude-Paull in the preparation of this article