Australian Law on Arbitration and International Arbitration Act - Case Study Example

Answer 1: Australian law on arbitration is based on international conventions, legislation (both federal and state) and common law. The international Arbitration Act (1974) (IAA) contains provisions implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (“New York Convention”) and the UNCITRAL Model law. The states and territories of Australia have their own uniform legislation on arbitration which is each State and Territory is called the Commercial Arbitration Act (“CAA”). The UNCITRAL model is applicable to internal arbitrations with the definition of Article 1(3) of the Model Law. Section 21 of IAA provides that the parties may exclude the application of the UNCITRAL Model law. The nature of arbitration refers to the anticipated effect an arbitral decision will have on the parties involved. A settled characteristic of arbitration is its binding nature; the parties are legally bound by the decision of the arbitrator. With the increase in congestion where court cases in terms of litigation procedures are concerned and the problems related to backlog, along with the complicated nature of international law prolonged discovery, and motion practice driving up the cost of litigation, arbitration has become an increasingly popular form of alternative dispute resolution. The process itself allows Arbitration allows an autonomous arbiter to resolve a dispute rather than putting it before court in a lawsuit. Absent an agreement to do so, parties are not required to submit disputes to arbitration. An arbitration clause, which is drawn up as part of the contract between the parties to provide for any dispute that may arise in the future, will usually be set out at the end of the contract and, as a matter if good practice should be preceded-or-followed by a choice of law clause. Since the arbitration clause is only on of the many clauses in a given contract, it would seem reasonable to assume the fact that the law chosen by the parties to govern the contract will also be the ones to govern the arbitration clause. Sometimes there is a clause in a contract to the effect that any dispute shall be referred to arbitrators and settled by them. If the parties expressly choose a particular law to govern their agreement, why should some other law-which the parties have not chosen-be applied to one of the clauses in the agreement, simply because it happens to be the arbitration clause? It seems reasonable to state as Professor Lew has said: “there is a very strong presumption in favor of the law governing the substantive which contains the arbitration clause also governing the arbitration agreement. This principle has been followed in many cases. This could even be implied as an agreement of the parties as to the law applicable to the arbitration clause. The presumption that the arbitration clause is governed by the same law as the underlying contract was reaffirmed by the English Court in Sonatrach Petroleum Corporation (BVI) v Ferrel International limited. In Wagners Nouvelle Caledonie Sarl v Vale Inco Nouvelle Caledonie SAS [2010] QCA 219 (20 August 2010), however the Supreme Court of Queensland stated clearly that : “Any dispute or difference whatsoever arising out of or in connection with this contract shall be and is hereby submitted to arbitration in accordance with and subject to the UNCITRAL Arbitration Rules. In the absence of an agreement by the parties to the appointment of an arbitrator, the appointing person shall be the National President of the Institute of Arbitrators and Mediators Australia (IAMA). The administrating body shall be the Institute of Arbitrators and Mediators Australia (IAMA). There shall be one arbitrator, the language of the arbitration shall be English, the place of the arbitration shall be Brisbane." The New York Convention is one of the most widely accepted conventions governing international commerce. It applies to two types of arbitral awards: those rendered in foreign countries and those not deemed as domestic in the state where enforcement is sought. The Convention imposes two principal obligations on state parties: (1) to ensure that national courts, where appropriate, refer parties to arbitration and stay related judicial proceedings; and (2) to recognize and enforce foreign arbitral awards essentially as if they were *24 domestic judgments. By virtue of the New York Convention, enforcement of arbitral awards has been made much easier, and jurisdictional problems have been largely eliminated. The law is also clear about the fact that in the event of the parties failing to choose the place of arbitration, it would be determined in accordance with the institutional rules selected by the parties. Article 14(1) of the ICC Rules provides that the ICC court will fix the place of arbitration. In LCIA and SIAC arbitration, London and Singapore respectively will be the pace of arbitration if no place is agreed to by the parties, unless the institution decides otherwise in view of all the circumstances (Grubbs, 2003). In fact article 16 f the United National Commission on International Trade law (UNCITRAL) Rules leaves it to the tribunal to select the place of arbitration. In the rare situation where the parties have not selected the place of arbitration, an administrative institution, or a set of arbitration rules, the place of arbitration would be determined by the arbitration tribunal (McIlwrath and Savage, 2010). The change in the law, now negates the assumption that if parties to a dispute chose to work outside the UNCITRAL, they could decide their dispute outside the model law. The changes that have been effected in the amendments to section 21 signify the fact that the Model Law now "covers the field”. This automatically then means that there would be no alternative to the arbitration by the state in relation instances wherein, the idea is to subpoena, or to affect the revelation of secret information. There are, however, provisions available to the parties on an "opt-out" basis which would give the courts jurisdiction in relation to these issues. “Unless parties agree to "opt-out", they will have the following rights in arbitrations governed by the IAA: a right to request that subpoenas be issued a right to seek security for costs a right to apply to a Court for relief as a result of non-compliance with a subpoena a right to apply to a Court for relief in the event that the respondent to an arbitration refuses to participate” Along similar lines, the assumption is that until and unless the parties to a dispute are in express agreement in favor of the adoption of a given provision, there can be no right for either party to apply to the Court for an order for the disclosure of confidential material. Where the idea of implied acceptance of disregard for an arbitration procedure is concerned, the basic proof of it not being true is inherent in the terms of the contract as clearely laid out by Forst and agreed to by Mr Chan, when in a letter dated January 21, 2010, the contract outline stated clearly, “any dispute, controversy or claim arising out, relating to or in connection with this contract including any question regarding its existence validity or termination shall be resolved by arbitration in accordance with the ICC rules. The seat of arbitration shall be Melbourne. The language shall also be English.” There are two basic questions that need answering in the context of this case, keeping the background to arbitration theory in mind. First, whether or not application of arbitration as put forward by the claimant, Mr. John Frost applicable at all; and if applicable what are the methods that could be allocated and strategies used for ensuring that the minimum possible damage is done by way of monetary penalty. What signifies in the context of the first question therefore is that litigation cannot be the accepted procedure for dealing with the conflict in this case, given that the contract expressly states that all conflicts related to the transaction would be dealt with through arbitration. First it must be remembered that international arbitration agreements give rise to questions of contract formation. It is elementary that Article II of the New York Convention and most national arbitration statutes will only given effect to an international arbitration agreement that has been validly formed. One of the cases where the issue is brought to the fore is the case of the IOC Oil award where the arbitral tribunal considered issues of formation of the underlying contract and the arbitration agreement. One of the p0rjary clauses that could be brought into play in the context of this case are Article 34 and 37 which allow the seller to cure defects in its performance, in cases where the due date for delivery has not yet passed provided that certain conditions are met. Article 37 relates to the seller’s delivery of non conforming goods under the terms of the contract. Under the aegis of Article 37, the seller is allowed to cure any delivery of on-conforming goods when there is still time before the date of delivery has passed. It states: “if the seller has delivered goods before the date of delivery may up to that date deliver any missing part or make up any deficiency in the quantity of goods delivered or deliver goods in replacement of any non conforming goods delivered or remedy any lack of conformity in the goods delivered provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense” Again, under article 48, the seller is also allowed to cure any defects in its performance after the performance has become due. In that case where the seller is therefore already in breach for not having performed by the due date. Article 48 allows the seller to set its own additional time period during which it may still perform as long as certain conditions are satisfied. It is clearly stated in Article 48 that if the seller request the buyer to make known whether he will accept performance and buyer does not comply with the request within a reasonable time, the seller may perform within the indicated in is request, the buyer may not, during that period of time resort to any remedy which is inconsistent with the performance of the seller. The idea here therefore is that given the provision for corrective action, there falls a direct responsibility on the buyer to allow the seller to take corrective action, if in reality there was in fact a problem with consignment that the seller delivered. This did not happen in the above mentioned case. Also, stated in Article 48(2) is the fact that the seller must be allowed to cure defections in performance by a set date. This leeway was also not allowed in the context of the present case. The only two times where the contract can be declared null is if, the seller has committed a fundamental breach, which was not the case here as the fault could simply be attributed to issues of confusion of 5 calves related to delivery or in cases of non-delivery. In conclusion therefore it might be reiterated that there is the chance that the claimant will get away with the case given first, that arbitration is the only way out and second that the set processes which should have been followed following defection in delivery were not followed by Chang. Answer1: The idea therefore is that autonomy of the arbitration clause and of the principal contract does not mean that they are totally independent one from the other as evidenced by the fact that acceptance of the contract entails acceptance of the clause without any other formality. This is therefore supportive of the view that the arbitration clause is generally governed by the same law as the rest of the contract but the reference to the autonomy of the arbitration clause, points to the problem that many arise. An arbitration clause is taken to be autonomous and to be separate from other clauses in the agreement. If necessary, it may stand alone. The idea therefore is that the arbitration clause is comparable to a submission agreement. It is this separability of an arbitration clause that opens the way to the possibility that it may be governed by different law from that which governs the main agreement. Neither arbitration nor litigation is uniformly preferable for all situations. A number of factors determine whether the owner should elect arbitration of litigation and legal assistance needs to be sought in ultimately coming up with this determination. The idea therefore is that given that there is an express arbitration clause that had been inserted in the contract itself, by manner of characters innately characterizing arbitration clauses given that it stated in essence that all disputes that would arise in the course of the transaction or the fulfillment of the contract, would be dealt with through the arbitration process and not through litigation. In the context of this the idea is that given that there is an express arbitration clause that ahs been made part of the contract right at the initiation of the business proceedings, there is no way that in this case, there could be any litigation. The dispute has to be therefore resolved through arbitration only. Answer 2: The judgment in Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-Ing GmbH (2001) 1 QdR 461 (Eisenwerk), established the principle in Australian law that in instances where an international arbitration agreement incorporates the rules of an arbitral institution or ad hoc rules, it amounts to opting out of Model Law. In a judgment that was unanimous, the Supreme Court of Queensland took a decision that through an adoption of ICC rules of Arbitration, the parties involved in a dispute, also elect to opt out of the UNCITRAL Model Law. This has been questioned for a while now, with practitioners of arbitration law in Australia having long considered that the judgment was out of step. In fact changes to the law that have recently been incorporated have effectively altered section 21 to the International Arbitration Act 1974 (1974 Act) so that the decision was overruled. That Act only recently came into effect on 6 July 2010. The judgment was taken under Section 21 of the Australia International Arbitration Act, which prior to amendment provided for the fact that if the parties to an arbitration agreement had (whether in the agreement or in any other document in writing) agreed that any dispute that had arisen or many arise between them is to be settled otherwise than in accordance with the model Law, the model law would not apply in relation to the settlement of that particular dispute (Greenberg, Kee and Weeramantry, 2001). The stance taken by the Supreme Court entered into a stage of definite change when on November 21, 2008, an announcement was made by the Attorney General to the tune of the fact that a complete appraisal of the International Arbitration Act would be undertaken. The bill that was a product of this arbitration was entitled the International Arbitration Amendment Bill, forming about 25 submissions from state courts, arbitral organizations, law firms and individuals that the Attorney General received. In fact during the judgment it was stated that: "With the passage of time, circumstances may change so that a provision in a contract worded identically to a provision in a contract construed by a court some time before, may need to be construed differently. For example, over time, the adoption and use of the Model Law in international arbitrations is likely to have changed from something of a novelty to a common practice where the seat of the arbitration has adopted the Model Law. In Eisenwerk, it was found that "only 19 countries" had adopted the Model Law to February 1998. It is not disputed that over 60 countries have now adopted it." Also, the IAA now comes equipped with a provision aimed at the minimization of delay where procedure related to enforcement is concerned. The now current approach while denying a given party the freedom of choice works towards the introduction of firmness and constancy in the manner in which international arbitration would be administered by Australian courts and what procedures are obtainable so that parties could be better aided in the process of dispute resolution. Answer 3: Conciliation is a process where the parties reach an agreement either by themselves or through a third party. Because the conciliatory process is voluntary, the parties may terminate the third-party mediator's appointment at any time before settlement. Theoretically, if parties privy to a dispute have not chosen a seat that choice will generally be made by the institution in an institutional arbitration. The London Court of International Arbitratuon (LCIA) rules provide that absent party agreement, the seat with be London, unless the Court decides otherwise. The World Intellectual Property Organisation (WIPO), and the International Chamber of Commerce rules provide for the institutional determination. The importance of a place of arbitration can be understood from the fact that most have regarded it as the most important variable in an international arbitration clause-by way of the seat of arbitration. It is the city to which the arbitration is legally attached. This does not however mean that any physical activity such as hearings or a tribunal’s meetings to deliberate need occur there. The choice of the place of arbitration brings with it at least three major legal consequences: 1. It determines, at least in traditional thinking, which municipal law should govern the arbitration (by ‘law governing the arbitration or law of the arbitration, one would mean the law governing the procedure that is to be followed, not the law governing the substance of the dispute. 2. Of most relevance in practice, the place of arbitration determines which courts supervise and support-or in some cases, interfere and obstruct-the arbitration and this would be inclusive of which courts hear and action to set aside the award; 3. And, the place of arbitration determines the nationality of the award, which is important for enforcement purposes. It is for these reasons that the choice of the place of arbitration is so significantly if the parties chose a place of arbitration that is not friendly to arbitration, there is plenty of scope for a delinquent party to derail any arbitration held there, or to have the courts of that place set aside a resulting award, leading the arbitration clause to be effectively worthless. In the well publicized cases of Pacific King and Galsworthy, the courts took to addressing the results of a failure on the part of a party to a dispute to dispute the award in the courts of the seat of arbitration. In the Galsworthy case, it was held by the court that any party to a dispute, if and when dissatisfied with an award is supposed to make an election among the two available options, and this was (it would seem) irreversible. In the case of Pacific King, the court went one step ahead and basically ended up stating that in cases where there was a failure to do so prohibited the disgruntled party from later seeking to reject the enforcement or acknowledgment of the award. The stimulation for both cases derives from Newspeed International Ltd v Citus Trading Pte Ltd [2003] 3 SLR(R) 1 (“Newspeed”), in which the High Court considered that a party confronted with an arbitration award against them would end up with two basic options – either to set it aside in the court having supervisory jurisdiction, or challenge its enforceability or recognition in the relevant courts subsequently. These options, said the court, were “alternatives”, not “cumulative”. Nor, it should follow, is it necessarily the case that a party who has chosen to challenge the award at the arbitral seat should be precluded from doing likewise at the enforcement stage. That the courts of the arbitral seat may find an award consistent with its public policy, for instance, should not foreclose the possibility that the enforcement of the same award could be contrary to the public policy of the enforcing state. And, indeed, there is a respectable view that the converse holds true: an award set aside in the arbitral seat may well remain enforceable elsewhere. A fortiori, when the courts at the arbitral seat do not decide on the merits of the challenge, it should be open to the enforcing court to come to its own view as to the matter. One of the advantages of international commercial arbitration is the freedom that parties have to negotiate their choice of law provisions (Craig, 1991). Where arbitral clauses do not specify the commercial principles governing a dispute, arbitrators are forced to evaluate foreign legal provisions and cultural differences in determining an equitable settlement. In the context of this case therefore it would become clear that there should be no problems in the selection of Singapore as the seat of arbitration, given especially that the agreement was instituted under the ICC. Also, given the fact that no place of arbitration was expressly mentioned in the contract, the choice of Singapore would make sense, given its impartiality and the reputation as the global capital of arbitration procedures. The idea therefore is that the seat of arbitration should be chosen by parties who have no connection to them as long as the seat is able to provide a neutral forum. It would not be surprising that security for costs could be awarded in one forum and not justifiable in another. Answer 4: Australia Arbitration law: Arbitration of international trade disputes in Australia is relatively underdeveloped. There have, however been efforts that have been made towards the creation of a system that would facilitate the administration of a correct system that for awarding international awards. The basic reason for this is the fact that most states in the Federation would want to work towards the development of an image of an industry friendly politick.   The Rules: The idea therefore would be the appointment of a national court that would have the expertise of dealing with the more peculiar nature that defines an international arbitration award. The answer therefore has been attempts made geared to the preservation of rights of the victorious party in the arbitration to ensure the application of justice. Also it is to facilitate and encourage foreign investment by ensuring the acceptance of foreign arbitration within the State and its implementation (Bishop and Crawford, 2005). The idea would also therefore be the – the application of the correct, just and fair method of law given the fact that arbitral awards are an international moral obligation on the state, meaning that the state for all moral aims and purposes would have to do the same with the other countries. States are trying hard to show good faith in international transactions (reputation - in international level), and when any country ratifies a certain Convention, then it will has the obligation to implement this agreement in good faith. On the other hand, the States has always sought to attract international investment by following several ways and one of the most important ways is to recognize foreign arbitration (Paulsson, J., 1999).   The challenges: Therefore, the international conventions relating to arbitration requires States to appoint a national court for recognition of foreign arbitration and implement it. A court may not set aside an arbitration award on the ground of error of fact or law on the face of the award. An award omn judicial intervention exists in cases where each state Supreme court has the jurisdiction to determine a preliminary point of law arising in an arbitration given the consent of both parties and the arbitrator. It also has to be understood that ach state Supreme Court has the power to set aside an award either in while in part.   There are two bodies that have been set up specifically for this purpose-the ICSID for example is responsible for enforcing arbitration awards and the national courts are expected to play little if any role in a dispute submitted to such bodies for arbitration awards5. The problem with a national court is that they are perceived as being too tied by convention when the nature of arbitration is such that every arbitration would be different and would vary according to the characteristics o the case. The arbitrations might be under different ruled with different national or international law applying, with one or three arbitrators and one or more claimants or respondents (Burnett and Bath, 2009).   The country is a signatory to the New York convention. both the New York convention and the UNCITRAL Model law have been implemented in Australia through the International Arbitration Act (1974) Cth. The International Arbitration Act also gives effect to the ICSID Convention. Each state and territory of Australia has last implemented its own arbitration legislation which are cumulatively referred to the Commercial Arbitration Acts. The Commercial Arbitration Acts are largely uniform and apply to domestic arbitrations as well as to some international arbitration in Australia (Baker and McKenzie, 2009). Reference: Greenberg, S., Kee, C J., and Weeramantry, R., (2010). International Commercial Arbitration: An Asia-Pacific Perspective. Cambridge University Press. 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