The Application of Foreign Arbitral Award in Australia - Case Study Example

Public Order as a Defense to Prevent the Application of Foreign Arbitral Award in Australia Name: Course: Tutor: 16th April, 2011. According to the New York Convention (the convention on the recognition and enforcement of foreign arbitral awards), Article V (2) indicates that an arbitral award may also not be recognized or enforced if “the competent authority in the country where recognition and enforcement is sought finds that: a) The subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or b) The recognition or enforcement of the award would be contrary to the public policy of that country”1. This convention is implemented through the International Arbitration Act 1974 (Cth) by the Australian government. It enables recognition and enforcement of foreign arbitral award2. Under this Act, Section 8 (7) has the following provisions (7) In any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may refuse to enforce the award if it finds that: (a) the subject matter of the difference between the parties to the award is not capable of settlement by arbitration under the laws in force in the State or Territory in which the court is sitting; or (b) to enforce the award would be contrary to public policy. (7A) To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if: (a) the making of the award was induced or affected by fraud or corruption; or (b) a breach of the rules of natural justice occurred in connection with the making of the award3. Australian government has been involved in a lot of foreign arbitral award enforcements and in most cases, the issue of violation of public policy has been used as a defense against enforcements of foreign arbitral awards presented in Australian courts. Different judges have come up with different decisions all which when analyzed, present a specific definition to what public policy is as viewed by the judges. This paper aims at presenting the judicial meaning of public policy according to Australian courts considering the decisions made by judges in cases with ‘contrary to public policy’ presented as the defense against enforcement of foreign arbitral awards, as well as the standards of the public order, when it should be used and when it should not be used, and to explain why the approach taken by the Australian courts is just or not. Definition of Public Policy According to Australian Courts Under normal circumstances, public policy comprises the rules and values that serve the social, economic or political interests of a region (region in this case may be a nation, a state, a group of nations or a particular place) or those pertaining to justice or morality of a specific place. The rules and values are developed to ensure law and order4. Considering the cases that will be presented, public policy is not just the already written laws and values or already established and well known rules and values of a particular place. Its judicial meaning to some instance is maintenance of the reason why the public policy (under normal circumstances) was developed in the first place and preservation of the role of the court in ensuring morality or justice in a specific place. If contrary to public policy is the defense against enforcement of foreign arbitral award, and indeed there is a policy that will be, might be or was intended to be violated by enforcement of the award, the public policy is not all that determines justice to a case. Intentions of the parties have to be determined to serve the real reason why the courts exist. Public policy according to most of the cases ‘with contrary to public policy as a defense against enforcement of foreign awards’ is more like preventing the reoccurrence of immorality in the name of acting according to legal requirement of a country, nation or region (Acting according to public policy requirement it can be referred). The courts are not just in place to act according to the already developed and implemented laws and rules. With changing times, environment and human tactics, reasons behind human actions have to be determined to ensure justice or moral behavior. In the case of Yang v S & L Consulting & Anor [2009] for example, by the defendant just arguing that the guarantee in clause 6 of the agreement is contrary to public policy, it does not mean that the agreement was not enforceable and that the award given to the plaintiff should not be enforced based on that. Considering the argument of the defense; yes to some extent it is contrary to public policy, but only a section of what is considered public policy. The argument that was provided by the defendant was that guarantee in clause 6 of the agreement provides the plaintiff with an incentive not to comply with the undertakings he had made to the government on the basis of which the visa had been issued. The Plaintiff was issued a 127 subclass visa and so bound by the requirements of Migration Regulations 1994 (Cth) 127.218. The argument presented by the defense is that the primary criteria of a subclass 127 visa holder would not be met by the plaintiff if that clause was enforced. Indeed there is no proof showing the plaintiffs intention not to or to abide by 127.216 (b) and (c) of the Migration Regulations 1994 Act (Cth)) and there is also no proof showing that he did abide by those rules but still the court’s ruling was against the defendants. The argument was based on; McHugh J in Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538 at 613 and (Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 at 229-230) cases; providing that one involved in an immoral or an illegal act shall not be assisted by the court unless; ignorant or mistaken, if the agreement was formed with intentions to benefit the claimant, if the illegal purpose has not been carried out and if the defendant’s undue influence, fraud or oppression induced the formation of the agreement, and that there was nothing unlawful in not acting according to 127.216 (b) and (c) for which the plaintiff would face the consequences. The defendant of the case could not be aided for the reasons stated above. The judge also clarified that equity and legal rights should not be denied because they are associated with unlawful purpose, but provided exceptions. By making this judgment, the court is trying to show that public policy is not just following what had been previously written as a rule or principle for law and order, but ensuring that morality and justice prevails. The court shows that the sole reason for the development of such rules and values is to ensure justice and moral behavior. By enforcing the award, the New York Convention rules are respected, the national public policy is respected and justice is served. Immorality is also prevented for when the defendant was engaging in the agreement; the intention was to abide by the binding rules, which according to the case were not obeyed. Other cases emphasizing maintenance of justice and morality, and the role of Australian courts as the judicial meaning of public policy, in foreign arbitral awards cases using ‘contrary to public policy’ as a defense against enforcement of foreign arbitral awards are; Transpac Capital PTE Limited v Buntoro [2008] NSWSC 671 ACD Tridon v Tridon Australia [2002] NSWSC 896 Corvetina Technology Ltd v Clough Engineering Ltd [2004] NSWSC 700 revised - 17/08/20045 International Movie Group Inc. (IMG) v. Palace Entertainment Corp. Pty. Ltd. China Sichuan Changhong Electric Co Ltd v CTA International Pty Ltd [2009] FCA 397)6 Parsons & Whittemore case(US court of Appeals in 1974)This case was referred to in one of the Australian cases (Resort Condominiums ) when making judgment on public policy as a defense against enforcement, with the same idea that public policy should maintain morality and justice7. Limits of Public Order In The Eyes Of The Competent Judicial Authority To Implement The Provisions Of Foreign Arbitral Awards Court decisions also show that the limits of public order lie within the courts. This is clear in Resort Condominiums v. Bolwell case, Corvetina Technology v. Clough Engineering Ltd and International Movie Group Inc. (IMG) v. Palace Entertainment Corp. Pty. Ltd. In Resort Condominiums v. Bolwell case, as according to Garnett and Pryles, an important finding by the court could affect future court decisions if enforcement of the awards was granted. Because of that, the court could not enforce the award and the basis of ruling was that in Australian courts, the courts have a general discretion as an additional ground for not recognizing and enforcing an award which otherwise qualifies to be recognized under the New York Convention. The court based its defense on s 8 (5) of the IAA which had no word ‘only’ in its provision of grounds under which recognition and enforcement of foreign awards should be recognized or enforced. Because of that, it was argued that s 8 (5) provides for residual discretion as an additional ground for refusal of enforcement of such awards8. This shows the level of control that the Australian courts have over the cases. According to Garnett and Pryles, so many academic commentators do not agree with the decision arguing that the Australian court does not have such residual discretion. According to them, the defenses put in place in Article V of the New York Convention and s 8 (5) of the IAA were exhaustive. It means that they leave no room for additional grounds for rejection of enforcement of foreign awards. This is as evidenced in the following cases; Parsons & Whittemore Overseas Co. Inc. v. Société Générale de l’Industrie du papier (RAKTA), 508 F.2d 969, 973 (2d Cir. 1974) and Rosseel N.V. v. Oriental Commercial & Shipping Co. (U.K.) Ltd., [1991] 2 Lloyd’s Rep. 6259. The court also found three reasons why the enforcement of the award that was presented was against public policy. One of the reasons however “they were not orders that a Queensland court would make”10, suggests that decisions made by the arbitrators should correspond to the law of the country in which the award will be enforced. This seems impossible for even at the time of decision making, the arbitrators do not know the country in which the award will be enforced11. According to Kennedy however, before 2010, enforcement of arbitral awards by IAA was done through s 33 of the commercial arbitration Act and this section seemed to provide the courts with residual discretion to enforce or not to enforce the awards12. In Corvetina Technology v. Clough Engineering Ltd, the New South Wales’ Supreme court showed its limits when it could not decide whether the courts have a general discretion existed additional to the expressed grounds in s 8 (5) and (7)13,14 In International Movie Group Inc. (IMG) v. Palace Entertainment Corp. Pty. Ltd, uncertainty is used as a basis of argument against enforcement of a foreign award. Under the New York Convention, uncertainty is not one of the grounds for refusal to enforce a foreign award, while under Australian law; it is a basis for refusal to enforce domestic arbitral awards. The courts used Australian law to make the decision disregarding the provisions of the New York Convention. Uncertainty is not a defense against enforcement in s 8 of the IAA neither is it in Article V of the New York Convention15. When Public Order Exception Should be Used or Rejected. As shown above, the Australian courts have all the powers to determine the limit of public policy. Australia has states with different laws and policies and it also has the common law. Because of that, under public policy exception in enforcement of a foreign award, different courts apply different public policies in different cases. The Supreme Court of Queensland will apply the regions public policy in deciding cases, which will not be the same as the Australian public policy16. This is clear in International Movie Group Inc. (IMG) v. Palace Entertainment Corp. Pty. Ltd and Resort Condominiums v. Bolwell case, as described above. There are also different attitudes towards arbitration in Australia and this determines the decisions by different jurisdictions17. Fusion of common law and equity also affect the decisions made by Australian courts therefore affects when public order should be accepted or rejected. The main issue here is what the Australian courts consider public policy. Common law and equity form part of public policy and so influence when to accept or reject public order exception18. Sheng also indicates that Australian courts enforce foreign awards using a strict approach. In New South Wales, the weight or value given to public policy exemption is more that public policy considered in the context of enforceability or validity of the award19. Are the Australian Courts Fair? Yes they are. These courts are based on different regions with different policies and according to the provisions in the New York Convention, if enforcement of an award will be contrary to the public policy of a place, then such an award should not be implemented. This justifies the actions of the Australian courts in refuting cases on the basis of contrary to public policy. Provided that the court can prove or show that such an award will be contrary to public policy, there is nothing unjust in maintaining the policies that provide law and order in the nation, state or region. Cases presented above that raise questions as to the unfairness of the Australian courts are such as; International Movie Group Inc. (IMG) v. Palace Entertainment Corp. Pty. Ltd and Resort Condominiums v. Bolwell case. In these cases, the courts used their residual discretion to reject the awards sort in the respective courts where the cases were handled to argue that the awards were against public policy. Many academicians viewed this as unfair but considering other cases involving foreign arbitral awards and the use of contrary to public policy as a defense against enforcement of an award; these cases can be considered just. There are three cases in which the courts used their own discretion to make judgments, and these were not considered unfair. These are; Xiaodong Yang v S&L Consulting Pty Ltd & Anor [2008] NSWSC 1051, China Sichuan Changhong Electric Co Ltd v CTA International Pty Ltd [2009] FCA 397 and Transpac Capital Pte Limited v Buntoro [2008] NSWSC 67120. In all these cases, the defendants did not appear in courts to challenge the awards. In Transpac Capital Pte Limited v Buntoro case, the court, on its own accord, still considered whether (under s 8 of the IAA) the grounds applied for the refusal of enforcement of the Singapore award. It then came to a conclusion that none of the grounds applied and made a decision based on that. In China Sichuan Changhong Electric Co Ltd v CTA International Pty Ltd case, the court made is judgment based on whether the defendant had been properly notified, for which, it was found to be true. The decision went in favour of the plaintiff (China Sichuan Changhong Electric Co Ltd) Xiaodong Yang v S&L Consulting Pty Ltd & Anor’s case was also considered on the basis of the plaintiff’s evidence meeting the criteria in s 8 of the IAA and proper information given to the defendant about the application of the enforcement. Leave to enforce was granted on the basis that there was no reason not to grant such an award21. In all these cases, the courts used their own residual discretion, as it can be referred, to make decisions regarding enforcement of foreign awards. The issue of ‘Residual discretion’ is not considered wrong here but in the cases where the courts indicated violation of public policy, the decisions are considered wrong by some academicians22. This is a clear indication that Australian courts aim at justice and morality although some of their decisions may seem not to go by the provisions of the New York Convention. The information provided above also emphasizes what the courts consider as public policy. It is their domestic policy which protects the reason for its establishment or development; that is, justice and morality. It is not used to defend immoral behavior because it is a rule. References Cheng, S., 2010, The Enforcement Of Chinese Arbitral Awards In Australia - A Case Study, Retrieved from: http://www.claytonutz.com/publications/newsletters/international_arbitration_insights/20100618/the_enforcement_of_chinese_arbitral_awards_in_australia-a_case_study.page Convention On The Recognition And Enforcement Of Foreign Arbitral Awards (NEW YORK, 1958) Clayton Utz, 2009, An update on the recognition and enforcement of foreign arbitral awards in Australia Retrieved from: http://www.claytonutz.com/publications/news/200906/22/an_update_on_the_recognition_and_enforcement_of_foreign_arbitral_awards_in_australia.page Garnett, R. and Pryles, M., 2008, Recognition and Enforcement of Foreign Awards under the New York Convention in Australia and New Zealand, Journal of International Arbitration, 25(6): 899–912. Kennedy, J., 2010, Arbitrate this! Enforcing foreign arbitral Awards and chapter III of the Constitution, Melbourne University Law Review, 34: 558-591. International Arbitration Act 1974 - SECT 8. Ma, W., 2005, Public Policy In The Judicial Enforcement Of Arbitral Awards: Lessons For And From Australia, Legal Science Doctoral Degree Thesis (SJD) Van Den Berg, International Council for Commercial Arbitration, 2006, Yearbook: Commercial Arbitration, The Hague, Netherlands: Kluwer Law International, P. 410-415. Cases Yang v S & L Consulting & Anor [2009] NSWSC 223 Transpac Capital PTE Limited v Buntoro [2008] NSWSC 671 ACD Tridon v Tridon Australia [2002] NSWSC 896 Corvetina Technology Ltd v Clough Engineering Ltd [2004] NSWSC 700 revised - 17/08/2004 International Movie Group Inc. (IMG) v. Palace Entertainment Corp. Pty. Ltd. China Sichuan Changhong Electric Co Ltd v CTA International Pty Ltd [2009] FCA 397)23 Parsons & Whittemore case(US court of Appeals in 1974 McHugh J in Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538 at 613 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 at 229-230 Resort Condominiums v. Bolwell case International Movie Group Inc. (IMG) v. Palace Entertainment Corp. Pty. Ltd. Parsons & Whittemore Overseas Co. Inc. v. Société Générale de l’Industrie du papier (RAKTA), 508 F.2d 969, 973 (2d Cir. 1974) Rosseel N.V. v. Oriental Commercial & Shipping Co. (U.K.) Ltd., [1991] 2 Lloyd’s Rep. 625 Xiaodong Yang v S&L Consulting Pty Ltd & Anor [2008] NSWSC 1051 China Sichuan Changhong Electric Co Ltd v CTA International Pty Ltd [2009] FCA 397 Read More