A recent decision of the New South Wales Court of Appeal has confirmed that the Australian courts have the power to partially enforce a foreign arbitral award. The decision in Aircraft Support Industries Pty Ltd v William Hare UAE LLC1 is seen as further evidence of the pro-enforcement stance being adopted by the Australian courts in proceedings where attempts are being made to challenge or resist enforcement of awards on grounds of public policy and breach of natural justice.
Background to the dispute
William Hare UAE LLC (William Hare), entered into a construction subcontract with Aircraft Support Industries Pty Ltd (ASI), an Australian Company, to perform work at the Abu Dhabi International Airport. The subcontract provided for disputes to be governed by the rules of the Abu Dhabi Chamber of Commerce and Industry, seated in Abu Dhabi. The agreement was governed by UAE law. A dispute arose in relation to the final payment due and the payment of retention monies. A final arbitration award was issued in May 2013 ordering ASI to make two payments of US$797,500 in respect of the retention monies and US$50,000 for a discount offered by William Hare to ASI in the final accounting between the parties (the Award).
William Hare sought to enforce the Award in New South Wales under section 8(2) of the International Arbitration Act 1974 (Cth) (IAA). ASI resisted enforcement on the grounds that it would be contrary to public policy under section 8(7)(b) of the IAA as there had been a breach of natural justice in connection with the making of the Award. Section 8(7A) of the IAA provides that the enforcement of an award would be contrary to public policy if a breach of the rules of natural justice occurred in the making of the award.
The first instance decision
At first instance, the court applied the decision of the Full Court of the Federal Court in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd2 and accepted the statement in that case that: “no international award should be set aside unless, by reference to accepted principles of natural justice, real unfairness and real practical injustice has been shown to have been suffered…in the conduct and disposition of a dispute in an award”.
The court rejected the claim that there had been a denial of natural justice to ASI in respect of the claim for the retention monies and rejected ASI’s argument that section 8(7A) of the IAA posed a restriction on circumstances where a foreign award could be enforced in part, pointing out that the “principles of severance have been applied to arbitral awards for centuries”. The court noted that permitting severance in cases where there was no injustice was an approach consistent with other jurisdictions. The court therefore held that part of an arbitral award could be severed under the IAA and so ordered that the Award could be enforced to the extent that it related to the retention monies.
However, the court declined to enforce the Award relating to the discount of US$50,000. It held that there had been a failure by the tribunal to provide natural justice to ASI in circumstances where there was an absence of any statement in the arbitration by William Hare that the claim for that amount was still being maintained and where the parties were not invited by the tribunal to address them on that claim. If the tribunal took the view that the claim remained open to be dealt with then fairness dictated that the tribunal should give notice to the parties.
The Court of Appeal decision
ASI argued that the whole of the Award should not be enforced because of the failure to accord them natural justice in respect of part of the Award – the US$50,000 claim. The Court of Appeal rejected this. In order to succeed, ASI had to demonstrate real practical unfairness and real practical injustice and no attempt had been made to do so. Further, the tribunal had given adequate reasons for its decision.
ASI submitted that it was not open to the court to partially enforce an award under section 8 of the IAA. They argued that unlike section 8(6), section 8(7) of the IAA makes no provision for partial enforcement and so by implication, partial enforcement was unavailable under section 8(7). The Court of Appeal rejected this argument. It found that the wording of section 8(7) did not expressly, or by necessary implication, impose a restriction upon the circumstances in which an award can be severed. Rather, in its terms the section clarifies the circumstances in which an award can be said to be contrary to public policy.
The Court of Appeal also affirmed the decision of Jacobs JA in Evans v National Pool Equipment3 that not since before the time of King James I has an award which was void in part been considered to be void altogether. It also cited with approval the statement in Russell on Arbitration4 to the effect that, provided the bad portion is clearly separate and divisible, the residue of the award can be enforced5.
The Court of Appeal noted that this was an approach that has been adopted in overseas jurisdictions, including cases involving the enforcement of awards under the New York Convention such as Nigerian National Petroleum Corporation v IPCO (Nigeria) Ltd6.
That case involved the enforcement of an award under the Arbitration Act 1996 which, like the IAA, made provision for a foreign award to which the New York Convention applied to be enforced and which contained provisions in identical terms to those contained in the IAA. As was pointed out in TCL Air Conditioner it is essential to “pay due regard” to decisions in other countries “where their laws are either based on or take their content from international conventions or instruments such as the New York Convention and the Model law”.
In endorsing the decision of the Full Court of the Federal Court of Australia, the Court of Appeal concluded that it would be surprising if an act designed to assist international trade and commerce by enforcement of foreign awards was required to be construed to take away a centuries old power to partially enforce awards where no injustice flowed as a result.
If it was not clear before, it should now be readily apparent that to challenge an international arbitration award before the Australian court as being contrary to public policy by reason of a breach of natural justice under section 8(7) of the IAA will continue to be very difficult.
At the very least, and for a court to decline to enforce an award under section 8(7) of the IAA, it will be necessary to show that a breach of natural justice has caused real practical unfairness and real practical injustice to the party resisting enforcement – which will be a high threshold not easily overcome.
This case also confirms that partial enforcement of an award remains an available option in Australia.