There have been relatively few recent developments in relation to the enforcement of arbitral awards in Australia. However, the Supreme Court of Western Australia recently delivered a potentially significant decision with respect to the enforcement of arbitration agreements in Australia. In Samsung C&T Corporation v Duro Felguera Australia Pty Ltd,1 the court considered the relationship between arbitration and jurisdiction clauses in the context of an application to enforce an agreement to arbitrate by staying proceedings commenced in the Supreme Court contrary to the parties' arbitration agreement.

Facts

Samsung C&T Corporation (Samsung) entered a Subcontract with an unincorporated joint venture of Duro Felguera Australia Pty Ltd (Duro) and Forge Group Constructions Pty Ltd (Forge) (Subcontract) in relation to the Roy Hill Project. The Subcontract contained an arbitration agreement providing for arbitration in Singapore. Upon Forge's insolvency, the Subcontract was terminated by Samsung. Samsung and Duro subsequently executed a term sheet (Term Sheet) in relation to Duro's remaining scope under the Subcontract (Interim Subcontract). The Interim Subcontract was entered on the same terms as the Subcontract, as amended by the terms of the Term Sheet, which contained a governing law clause and a jurisdiction clause, but no separate arbitration agreement.

In responding to Samsung's notice of arbitration, Duro made offsetting claims against Samsung, some of which arose under the Interim Subcontract (Duro Claims). Samsung sought a declaration from the Supreme Court of Western Australia (SCWA) that:

  • There was no binding arbitration agreement covering the Duro Claims under the Interim Subcontract; and
  • The jurisdiction clause in the Term Sheet covered the Duro Claims and that the SCWA is an appropriate forum to determine such claims.

Samsung argued that there was no arbitration agreement in the Interim Subcontract because the inclusion of the jurisdiction clause fundamentally changed the dispute resolution mechanism contained in the Subcontract from arbitration to litigation.

Duro opposed Samsung's argument on the basis that the Interim Subcontract contains an arbitration agreement by reason of the arbitration clause in the Subcontract. Accordingly, it sought the proceedings initiated by Samsung to be stayed pursuant to section 7 of the International Arbitration Act 1974 (Cth) (Act).

This dispute was the latest in a string of disputes arising out of the Subcontract and the Interim Subcontract between Samsung and Duro. Previously, the litigated dispute concerned whether Samsung was entitled to have recourse to bank guarantees provided by Duro.

The International Arbitration Act

Section 7 of the Act creates a mandatory stay procedure, whereby, an Australian court must stay proceedings where it applies. The arbitration agreements to which the section applies are set out in section 7(1) of the Act and section 7(2) provides the circumstances where a court must stay proceedings, namely where:

  • Proceedings are instituted by a party to an arbitration agreement to which section 7 applies; and 
  • The proceedings are within the scope of the arbitration agreement and capable of settlement by arbitration.

There is a general principle of arbitral law, known as “competence-competence”, providing that an arbitral tribunal has the power to determine its own jurisdiction. However, the enquiries undertaken by a court when determining whether to grant a stay under section 7 of the Act require the court to form a view as to the existence and scope of an arbitration agreement; in other words, the tribunal’s jurisdiction. Justice Le Miere identified a threshold issue in this case, being the standard of review a court should apply when considering such matters.

The arbitration-friendly Singaporean courts have applied a test that, if it is satisfied on a prima facie standard that the conditions for a stay exist, the stay will be granted.2 English courts, however, have required the court to be satisfied that the conditions for a stay to have in fact been met.3

Decision

In relation to the threshold issue, Justice Le Miere applied the full merits approach adopted by English courts. In this regard, he considered a decision of the Federal Court which considered a substantially similar provision in the Commercial Arbitration Act 2010 (NSW).4

Justice Le Miere characterised the dispute between Samsung and Duro as a dispute in relation to whether an arbitration agreement existed rather than whether the scope of an arbitration agreement covered certain claims. In the circumstances, he considered it proper to determine this question on the balance of probabilities. However, it may be arguable that the approach adopted by the Singaporean courts may apply where the question is to the scope of an arbitration agreement rather than its existence. The Duro Claims clearly fell within the scope of the arbitration agreement, meaning the central issue was whether the Interim Subcontract contained an arbitration agreement. For the following reasons, Justice Le Miere preferred Duro's argument that the arbitration agreement from the Subcontract applied to the Interim Subcontract:

 

  • The provision incorporating the terms of the Subcontract into the Interim Subcontract was properly construed as providing that the Subcontract was only modified to the extent it was inconsistent with the Term Sheet;5
  • The jurisdiction clause in the Term Sheet was not inconsistent with the arbitration agreement because:
    • The proper interpretation of the jurisdiction clause is that the parties submit to the jurisdiction of Western Australian courts in relation to proceedings that may be commenced consistently with the arbitration agreement (e.g. enforcement proceedings or urgent interlocutory applications);6 and
    • The ordinary and natural meaning of the jurisdiction clause is that the parties submit to the jurisdiction of Western Australian courts in respect of relevant proceedings, 7 and
  • It would be commercially inconvenient if disputes concerning work under the Subcontract were referred to arbitration and the continuation of work under the Interim Subcontract must be resolved by litigation.8

Accordingly, Justice Le Miere found that the Duro Claims were within the scope of an arbitration agreement between the parties, granted a stay of the proceedings and referred the parties to arbitration.

Take Away Points

The key principles that may be taken from the decision of Justice Le Miere are as follows:

  • For a stay to be granted under section 7 of the Act, Australian courts are likely to adopt the English position that the necessary requirements must be established on the balance of probabilities.
  • Jurisdiction clauses are not necessarily inconsistent with arbitration agreements,
  • Where parties have included both jurisdiction clauses and arbitration agreements in a contract, whether the parties have validly submitted to arbitration is a question of construction.