The International Arbitration Act - Term Paper Example

On November 21, 2008, the honorable Robert McClelland announced intention to review and amend the International Arbitration Act 1974 (IAA). The reviews objectives was to amend the IAA to ensure that there is a “comprehensive and clear framework governing international arbitration in Australia; improve the effectiveness and efficiency of the arbitral process while respecting the fundamental consensual basis of arbitration, and consider whether to adopt best-practice developments in national arbitral law from overseas.”1 To this end, McClelland proposed questions A-H about the IAA and invited discussion on these questions. Many organisations around Australia subsequently weighed in on the different issues presented for discussion. This paper will concentrate on Question B of the discussion, noting the submissions and critiquing same. Question B of the IAA discussion paper asked if “the International Arbitration Act be amended to provide expressly that a court may refuse to recognise and enforce an arbitral award only if one of the grounds listed in subsections 8(5), 8(7) or 8(8)?” This is in response to an approach that was set forth in the case Resort Condominiums International Inc. V. Bolwell and Another [1995] 1 Qd R 406,2 in which the Supreme Court of Queensland found that a court has discretion to refuse to enforce and recognise an arbitral award, even if that award was not specifically in violation of the grounds set forth in section 8 of the IAA, while acknowledging that the general rule that a foreign arbitration agreement is valid if it does not violate one of these tenets3 . In other words, the Resort Condominiums court states that a court does not need to uphold a foreign arbitration agreement, and it can use its discretion to refuse to recognize or enforce the award as it sees fit, even if the agreement does not violate the specific circumstances set forth in the IAA. The specific provisions that list the grounds upon which a court may refuse and enforce an arbitral award are that a court may not enforce an award if one of the parties had an incapacity at the time that the agreement was made; that the agreement is not valid in the country in which it was made, or under the law upon which the agreement was made; that the party was not given notice of the arbitration proceedings or the appointment of the arbitrator, therefore was not able to present her case in the proceedings; the award “deals with a difference not contemplated by, or not falling within the terms of, the submission to arbitration, or contains a decision of a matter beyond the scope of the submission to arbitration”; the way that the arbitral authority or arbitral procedure was composed was not as the parties agreed or was not in accordance with the law of the arbitration country; or that the award had not yet become binding to the parties or has been suspended or set aside by a court of the country where the award was made.4 Other provisions include that a court may refuse to enforce a foreign award if the subject matter of the award is not capable of settlement by arbitration under the law of the State or Territory in which the court sits; to enforce the award would violate public policy, which would include an award that was made in response to fraud or corruption, or that “breach of of the rules of natural justice occurred in connection with the making of the award.”5 According to the ACICA, the discretion that was read by the Resort Condominiums court was based upon the differences in the opening words of the IAA section 8 and the Article V of the New York convention, upon which the section 8 of the IAA is based.6 Article V states that “recognition and enforcement of the award may be refused, at the request of the part against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought proof that....” Article V then goes on to list the same provisions that the IAA (New York Convention, Article V). Therefore, the key difference between the IAA and the New York convention is the word “only” that appears in the New York convention article V, and was not present in the IAA counterpart. Because the word “only” was not a part of the IAA, courts may use discretion, according to the Resort Condominiums court. As the New York Convention is “recognized as the most successful multilateral treaty in the area of international trade”7, binding 150 signatory states in referring arbitration cases and recognizing and enforcing foreign arbitral awards, the New York Convention should be the standard by which the IAA should model itself. The IAA should be amended so that the courts discretion in refusing to honor foreign arbitration agreements can be restricted to only those agreements violating the specific provisions of section 8 of the IAA. The reasons for this are stated by various submissions to the discussion paper. One of the reasons stated that it is undesirable to have provisions that differ from the New York convention is that to go against the New York convention will lessen Australias attractiveness as a place for international arbitration.8 Part of the reason for this is because “Australia is obliged to implement its international obligations in good faith, including treaty obligations to which it has voluntarily subscribed, and demonstrate respect for the rules of international law” (NSW Young Lawyers International Law Committee). Because Australia has taken on this obligation to international law, to violate it by adopting rules that are in contradiction to established International rules, such as the New York convention would put Australia at a disadvantage because its integrity as an international court would be endangered. Also, according to Stephen Bouwhuls submission to the discussion, “the existence of an ephemeral discretion will potentially dissuade users from utilising the arbitral process with an Australia seat for the arbitration or Australia as the place of enforcement of the award.”9 In other words, giving judges discretion will make participants less likely to choose Australia, presumably because of the inconsistency that is inherent when judges have too much discretion. Another reason why giving judges discretion to enforce awards is potentially damaging to Australias hope to be an arbitration hub is because it makes arbitration less efficient. According to Judge Howard Holtzmann, known to be “one of the most pre-eminent leaders in the field of international arbitration,” the arbitration system works most efficiently and effectively when, amongst other things, “international treaties assure the recognition of agreement to arbitrate and the enforcement of foreign arbitral awards.”10 Since giving judges discretion to enforce awards necessarily means that the enforcement of foreign arbitral awards is not assured, this makes the arbitration system less efficient and effective, which would, in turn, less Australias stature as an arbitrating court. And, according to another submission to the discussion paper, Australia is already at a disadvantage when it comes to international arbitration, due to its remote geography that is far away from “the mainstream areas of arbitration and international trade and commerce in the USA, Europe, the Middle East and Asia”, therefore it does not need another disadvantage such as the disadvantage of being perceived as going against the international grain.11 Moreover, according to this submission paper, Australia does not procure favor over other countries by adopting the model rules, as the Model Law is widely adopted by other nations, and that Australias court integrity is held in low esteem by arbitration practitioners and arbitration lawyers around the world, due to judgements made by Australian Court that range from “perverse to simply wrong.”12 Therefore, according to this view, Australia already has problems being accepted by the international community, due to its remote location and wrong judgements. If Australia is perceived as going against the New York convention standards, then it presumably would be held in even lower esteem. Moreover, there is apparently an international perception that Australias courts are more “interfering” than other courts, such as Hong Kong, Singapore, Switzerland and France.13 According to John Rundell (2009), this perception stems in part from the case of Esso v. Ploughman (1995) 183 CLR 10, in which “the High Court of Australia intervened and the confidentialty of the parties was not preserved by the Courts” (Rundell, 2009, p. 2). Rundell goes on to say that the international perception of this case was that it was not related to public policy issues, although Rundell believed that this case was so related. Therefore, if Australia is seen by the international community as being overly interfering, giving it discretion to void fair agreements according to the whims of individual judges will not help this scenario. This is yet another reason to erase the judges discretion and adopt a strict interpretation of the clause in question. According to Rundell, “such interference by Courts seeking to override foreign awards should be limited and the basis should be interpreted as narrowly as possible with respect to public policy” the public policy presumably stemming from the international perception of Australia as interfering.14 Rundell also stated that “to continue to have the perception that our Courts interfere excessively in blocking the enforcement of international commercial arbitration awards is harmful to the economic trading position of Australia internationally.”15 The New South Wales Young Lawyers International Law Committee (ILC) echoes this, as it states that Article 5 of the United Nations Commission on International Trade Law (“UNCITRAL”) provides that “in matters governed by this law, no court shall intervene except where so provided in this Law.”16Therefore, UNCITRAL dictates that all court intervention is limited to those instances provided for in the UNCITRAL legislation. ILC believes that this is important, as “protecting the arbitral process from unpredictable or disruptive court interference is essential to parties who choose arbitration.”17 The Victorian Bar also states that it is important that Australia not be seen as unnecessarily interventionist, saying that “decisions of Australian courts that create uncertainty or encourage a perception of unnecessary judicial intervention in the arbitral process need to be promptly addressed by appropriate changes to the Act.”18 Trone & Moens (2007) state that according to Model Law, courts may only intervene as provided for by the Model Law, and that “judicial intervention should be exceptional.”19 On the other hand, there is a view that is not quite so relentlessly negative about Australias place on the world arbitration stage. For instance, ILSACs submission to the discussion paper, while acknowledging that Australia has a geographical limitation, and also that Australias legal system is complex and difficult for foreigners to understand, nevertheless believes that Australia is an attractive venue for international arbitration.20 This is because, according to the ILSAC, “the efficiency of the Australian court system, the combined expertise of Australias international arbitrators and arbitration practitioners and the well developed infrastructure all contribute to Australias suitability.”21 According to this view, Australia is an attractive international arbitration venue. It needs consistency and the view of comporting with international law to stay that way. Therefore, adopting an amendment that brings the Australia law into line with international law will help facilitate Australias ascent onto the world arbitration stage. “Constancy and uniformity in interpretation enhances the statute of our court as a true beacon of light for justice.”22 Australia also needs to be seen as more progressive than other world arbitration stages, such as Hong Kong and Singapore, in the ares of “procedural rules, experienced arbitral institutions, arbitral law and judicial philosophy”.23 Allowing Australian courts to interfere with fairly made arbitration agreements negates this, and makes Australia seem less progressive, therefore puts Australia at a disadvantage to countries that are seen as more progressive. Moreover, these other countries are “well in advance of Australia in establishing themselves as centers for international commercial arbitration,” noting that between the years 2003 and 2007, Hong Kong had administered 1690 arbitrations, Singapore 263 arbitrations, and Australia only 7.24 Therefore becoming more progressive than these countries with Australias arbitration rules is more crucial than ever. Another reason why the IAA needs to amend its provision to comport with international law and erase judicial discretion in enforcing international arbitration awards is because “there is in place a coherent international system for resolving commercial disputes by arbitration, which stands in marked contrast to the complex, incoherent jungle of diverse provisions for international litigation.”25 In other words, if judges have discretion to void awards, then these awards are subject to the “complex, incoherent jungle” that represents the Australian judicial system. There are courts in states, territories and federal, all of which have different, sometimes conflicting rules. Some judges in some jurisdictions may be constrained by their rules, while other judges in other jurisdictions would not be so constrained. Therefore, arbitration awards would be subjected to the patchwork of laws and rules that make up the complex Australian judicial system. On the other hand, if Australia adopts the New York convention rule, arbitration participants can be assured that their agreement will be evaluated according to one set standard, not a multitude of standards. Related to this objection is that of The Honourable Neil Brown in his submission to the discussion.26 According to Brown, not only should an amendment be made to bring the ILA in line with the New York convention, but that the wording regarding public policy, as in section 8(7)(a) should read “international public policy.”27 The reason for this is because, the way it reads, judges will still presumably have discretion to void an award according to the public policy provision. This is because of the vague wording that a breach of public policy means “a breach of of the rules of natural justice occurred in connection with the making of the award.”28 That ambiguous language gives judges discretion to decide if “the rules of natural justice” were breached, and this discretion is governed by individual courts. This give courts “a sua sponte reserve power to refuse to enforce a judgement or award” which enables judges to invoke “hometown justice.”29 The Victorian bar echoes this, stating that the public policy grounds for refusing enforcement “has been productive of most uncertainty and divergence among signatories to the Convention.”30 The Victorian Bars solution to this problem would be to define a breach of public policy as ?anifestly contrary to widely accepted principles of international public policy.31 The International Chamber Commerce agrees with this definition of public policy. 32 Therefore, the lack of a well-defined rule regarding the public policy exception threatens the proper functioning of the New York convention enforcement model. Adopting an international definition a public policy breach would presumably rectify this problem.33 Brown also noted that the adoption of international public policy is favored by many leading courts, including Switzerland,France and the United States, and that these courts prefer international public policy standards because it reduces the chance that international foreign arbitration awards will be voided by the ambiguous public policy provision.34 Another reason to eliminate judicial discretion in enforcing awards is because it violates the expectations of the parties. Parties choose arbitration because of its impartiality, along with its efficient adjudication.35 Giving judges discretion takes away from the impartiality, and subjects the parties to partiality, which is what they are trying to steer away from when choosing arbitration. Conclusion Australia has issues as far as being seen as a hub for international arbitration disputes. One of these issues is its remote location makes it less attractive than more centrally-located countries. Another is that is not seen as being as progressive as other countries. Still another is that it has a reputations for being to interfering in its judicial decisions. Because of this, Australia has lagged behind other countries in the realm of international arbitration disputes, logging just 7 arbitration decisions during a period when Hong Kong logged over 1,600 disputes and Singapore over 200. Despite this reputation, Australia has gone on record, with at least one court judgment, to state that international arbitration agreements may be voided by a judge for essentially any reason. Yes, this case acknowledged that these agreements should be binding whenever possible, but also gives residual discretion to judges, which gives these judges free reign to void agreements that they do not like. Couple this decision with the fact that the IAA has a very vague definition of “public policy,” and a recipe for the judiciary run amok is created. All of this is not helping Australias reputation. It needs to be seen as non-interventionist for it to be seen as more attractive to participants in a dispute. The participants themselves need certainty and constancy, for this is the reason why they choose arbitration in the first place. Arbitration works best when there is consistency and a sense that judgments are final. To this end, it is imperative that Australia eliminate judicial discretion in enforcing foreign arbitration judgments by stating that these judgments may only be voided if one of the parties is incapacitated, if one of the parties did not get notice to the proceedings, or if the agreement is void by the law under which it was made, along with the other provisions enumerated in the IAA. Moreover, the term “public policy” must be given more definition and weight. As it stands, the definition is open to interpretation - “a breach of rules of natural justice” is too ambiguous of a definition to stand and gives the judge too much leeway in interpreting this clause. This clause could essentially mean anything and everything, and there is really no good way to interpret it, which means that the parties are still at the mercy of the judiciary if this term is not made more clear. Judicial discretion also subjects the parties to a complex system that is composed of courts on the local, state, territory and federal levels, all of which have their own byzantine rules. Some of these jurisdictions may already limit judicial discretion in enforcing awards, while others may be silent. In other words, arbitration participants are forced to make their way through the very system that international arbitration is designed to circumvent. The parties choose arbitration partially because they do not want to be subjected to a system where a judges whim can control their fate. By allowing judicial discretion in voiding awards, the advantage to arbitrating is erased. The parties probably figure that it would be just as good to go through the normal court channels. In short, if Australia continues to be seen as a country that is unfriendly to arbitration agreements, as it probably will be if judges are going to continue to be able to use their discretion in voiding awards, then it will be looked upon unfavorably by the international court, which will necessarily limit its ability to attract more international business. Sources Used AA de Fina, “Review of the International Arbitration Act 1974” (2008). ACICA, “ACICAs Submission – Attorney-Generals Review of the International Arbitration Act 1974.” Chartered Institute of Arbitrators, “Comments and Submission Upon A Review of the International Arbitration Act, 1974” (2009). David KS Lim, “IAA Review – Comments” (2008). Fabien Gelinas, “Peeking Through the Form of Uniform Law: International Arbitration Practice and Legal Harmonization,” (2009). International Arbitration Act 1974. ICC Australia, “Review of the International Arbitration Act 1974” (2009). John Trone and Gabriel Moens, “The International Arbitration Act 1974 (CTH) as a Foundation for International Commercial Arbitration in Australia,” (2007), McQuarie Journal of Business Law (4), 295-324. ILSAC, “Submission on Discussion Paper Concerning Review of the International Arbitration Act 1974 (2008). Law Council of Australia, “Review of the International Arbitration Act 1974 Comments by the Law Council ADR Committee” (2008). Neil Brown, “Submissions on Review of International Arbitration Act 1974” (2009). NSW Young Lawyers International Law Committee, “Submission to the Review of the International Arbitration Act 1974” (2009). Piper Alderman, “PA Submission to Attorney General” (2009). Resort Condominiums International Inc. V. Bolwell and Another [1995] 1 Qd R 406 Review of the International Arbitration Act 1974 Discussion Paper. John Rundell, “Review of the International Arbitration Act 1974” (2009). The New South Wales Bar Association, “Comments on the Review of the International Arbitration Act 1974” (2008). The Victorian Bar, “Submissions of the Victorian Bar in Response to the November 2008 Discussion Paper Reviewing the International Arbitration Act 1974.”                                   Read More