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Focus: Arbitration Quarterly

10 October 2012

In this issue: we look at a decision of the High Court of India that should make it easier to enforce foreign awards in that country; whether judicial acts are 'acts of state' for the purpose of the act of state doctrine; a notice of investment dispute that has been issued to the Mongolian Government under the bilateral investment treaty between Singapore and Mongolia; competition law as a 'mandatory' law for arbitration in Australia; and a decision to stay court proceedings in favour of arbitration made in the context of multiple agreements governed by multiple laws.

Editors: Partners Duncan Travis (view CV) and Andrea Martignoni (view CV), Special Counsel Nicola Nygh (view CV) and Senior Associate Andrew Barraclough.

Foreign arbitration in India – freedom to fail

In brief: The Supreme Court of India recently overturned its previous decisions under which Indian courts had set aside foreign arbitral awards and awarded interim relief in foreign arbitrations. Partner Duncan Travis (view CV) and Lawyer Tim Maxwell report.

How does it affect you?

  • In Bharat Aluminium Co, the Supreme Court found that Part I of the Indian Arbitration and Conciliation Act 1996 does not apply to any arbitration the seat of which is outside India1 and this will mean that:
    • Indian courts are far less likely to interfere in the enforcement of awards made in foreign arbitrations; but
    • interim relief, for example to preserve assets or evidence in India, will not be available in these arbitrations, either under the Act or otherwise; so
    • parties contemplating where to seat new arbitration agreements concerning ventures with a significant connection to India will need to consider whether interim relief or freedom from Indian courts' power to set aside an award is the more pressing consideration.

Background

The Supreme Court's previous decision in Bhatia International v Bulk Trading SA arose out of an application to freeze assets in India pending the outcome of an arbitration with its seat outside that country.2 The court found that Part I of the Act (which deals with starting and conducting an arbitration, and challenging and enforcing a resulting award) applied to all arbitrations, no matter where their seat, so long as the parties had not excluded the Act in their agreement to arbitrate. As such, an Indian court had the power to order interim relief in support of the arbitration.

Following this decision, Indian courts had found that they also had jurisdiction, under Part I, to set aside arbitral awards even where the seat was outside India. It was on this basis that Coal India secured a judgment setting aside an award in favour of White Industries, delivered by a panel constituted under the auspices of the International Chamber of Commerce in London, in the High Court of Calcutta. White Industries' appeal of that decision, and separate action for enforcement of the award before the High Court at New Delhi, were considered by the Supreme Court in Bharat Aluminium Co, along with a number of other appeals that raised the same issue concerning the application of Part I of the Act to arbitrations with a foreign seat. (A description of White Industries' successful international arbitration arising out of the delay in having these claims resolved is in our May 2012 edition of Arbitration Quarterly.)

The decision of the Supreme Court

As mentioned, Part I of the Act provides for starting and conducting an arbitration, and challenging and enforcing a resulting award. Part II deals only with the enforcement of foreign awards made under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Geneva Convention on the Execution of Foreign Arbitral Awards. In deciding that Part I of the Act did not apply to foreign arbitrations, the court found that the Indian Parliament's intent was for Parts I and II of the Act to be entirely separate. While close textual analysis was put forward to support both sides of the argument, the crucial element of the court's reasoning was its view that the Parliament had primarily intended to adopt the Model Law when passing the Act in 1996. In the court's view, this meant that, consistent with the Model Law's approach, the seat of the arbitration determines which jurisdiction's courts are to supervise the arbitration. If the arbitration's seat is India, Part I will apply, and if not, Part II will apply. This is so regardless of:

  • the terms of the agreement to arbitrate, or any other agreement between the parties;
  • the nationality of the parties;
  • where the tribunal chooses to hold its hearings (ie the venue of the arbitration); or
  • any other factor.

The court therefore rejected the principle of party autonomy, under which the parties' choice of Indian law to apply to the substance of the dispute would mean that Part I of the Act would also apply to the conduct of the arbitration. The consequences that flow from this for the conduct and enforcement of arbitrations with a foreign seat (but a substantial connection to India) are of course significant, and are discussed below. Perhaps of equal significance, however, was the court's willingness to engage with, and adopt, the large and growing international jurisprudence concerning these issues. In particular, it looked to the jurisprudence concerning both how the Model Law should apply and Article V(1)(e) of the New York Convention regarding which courts are empowered to set aside an award.

The two key consequences of this engagement are that:

  • Indian courts do not have the power to set aside a foreign award, and so are far less likely to interfere in the enforcement of these awards, being limited to the grounds for resisting enforcement found in Part II of the Act; but
  • interim relief, for example to preserve assets or evidence in India, will not be available in these arbitrations, either under the Act or otherwise.

While this first point is a welcome change, White Industries' second successful arbitration against Coal India arose out of the delay it encountered in having its first award enforced through India's overburdened judicial system. The tribunal there found that this delay amounted to a failure to provide 'an effective means of asserting claims and enforcing rights with respect to investments.'

As to the second point, the court found that the only power to provide interim relief is contained in Part I of the Act, and so was not available to arbitrations with a foreign seat. It also found that Indian courts did not have the power, based more broadly in Indian civil law, to grant such relief, as they had no power to provide final relief concerning the foreign arbitration. It was argued before the court that this represented a gap that the Parliament could not have intended. The court rejected this argument, on the basis that parties choosing a seat outside India are taken to be choosing not to have recourse to Indian courts in support of the arbitration. A change to this position, in the court's view, could only be made by Parliament.

Given that its previous decisions had been extensively relied on,3 the court held that this judgment would only apply prospectively, from 6 September 2012. Arbitration agreements made before this date will therefore still be subject to the earlier regime.

Comments

Parties contemplating where to seat new arbitration agreements concerning ventures with a significant connection to India will need to consider whether interim relief or freedom from Indian courts' power to set aside an award is the more pressing consideration. Parties with agreements already on foot should also consider whether they wish to take advantage of this explicitly prospective ruling, and, if so, seek to negotiate a new agreement with their counterparties.

UK Court stops parties from pouring oil on troubled waters

In brief: In June this year, the UK Court of Appeal unanimously decided that the judicial acts of foreign courts are justiciable by the courts of another country. Partner Andrea Martignoni and Law Graduate Sephora Sultana report on this decision, which has implications for foreign award enforcement.

How does it affect you?

  • This case demonstrates that the courts of one country may have jurisdiction to consider and challenge decisions of foreign courts, despite the act of state doctrine.
  • The UK Court of Appeal reinforces that an issue estoppel will only be created where the issue is the same as that decided by the earlier judgment.

Background

Yukos Capital SARL (Yukos) is incorporated in Luxembourg but was originally part of a Russian group of companies. It obtained Russian arbitration awards against OJSC Yukanskneftegaz (YNG), another Russian company. YNG was part of a Russian resources group that subsequently moved within majority Russian state ownership and control. YNG's liability to Yukos then passed to OJSC Rosneft Oil Company (Rosneft) (also within Russian state control) by a process of universal company succession.

The arbitration awards were subsequently set aside by Russian courts. Yukos alleged that the annulment decisions were part of a campaign of state interference being waged by the Russian state.4 Yukos then sought to enforce the awards in The Netherlands, under the New York Convention. At first instance, the Dutch court refused enforcement because the awards had been set aside in Russia. However, the Amsterdam Court of Appeal overturned this decision, on the basis that a Dutch court is not compelled to enforce an arbitral award if doing so would conflict with Dutch public order. The Amsterdam Court of Appeal held that the Russian decisions were passed by a judicial body that was not impartial and independent and that an abuse of due process had occurred.5 This decision was based on evidence (accepted by the court) that the Russian judiciary is politically subservient. The Amsterdam Court of Appeal thus refused to give effect to the Russian annulment decisions and the awards were recognised and enforced in The Netherlands.

Yukos then brought a claim in England, seeking to enforce the awards under the New York Convention. The UK Court of Appeal's decision concerned an appeal on two preliminary issues ordered to be tried by Justice David Steel and decided by Justice Hamblen of the Commercial Court.

The decision of the UK Court of Appeal

The UK Court of Appeal upheld Justice Hamblen's decision that the act of state doctrine did not apply and overturned his decision in relation to issue estoppel.

Issue estoppel

At first instance, and on appeal, Yukos argued that the Amsterdam Court of Appeal's decision that the Russian annulment decisions were 'partial and dependent' issue estopped Rosneft from contending otherwise. It alleged that it would then have essentially established that the annulment decisions should not be recognised. Rosneft argued that the issue in this later action was different from that decided by the earlier judgment, because the Dutch court made its decision to enforce the awards on the basis of Dutch public policy, whereas the English courts would look to English public policy. The court held that issues of public policy vary among countries, as do the standards against which to judge whether foreign courts have acted impartially and independently. As such, the UK Court of Appeal disagreed with Justice Hamblen and found that no issue estoppel was created. The issue of whether the Russian decisions were partial and dependent thus remains an issue to be tried.

Act of state doctrine

The second preliminary issue was whether the act of state doctrine prevented the court from considering Yukos's claims in relation to the Russian annulment decisions. The doctrine establishes that the courts of one country are not permitted to question the conduct of a foreign government.6 Rosneft argued that the doctrine prohibited English courts from passing judgment on the legitimacy of the judicial acts of a foreign state. The court disagreed, holding that judicial acts will not be regarded as acts of state for the purposes of the doctrine. As such, where a foreign court acts in a way that is an abuse of its own responsibilities as a court of law, domestic courts are not obliged to give effect to its acts, provided that there is cogent evidence of its failings. The court thus upheld Justice Hamblen's declaration that the act of state doctrine did not apply thereby allowing Yukos' challenge to the Russian annulment decisions in future proceedings.

Analysis

This case is a timely reminder that domestic standards will necessarily impact upon decisions on recognition and enforcement of foreign awards. Judicial acts are clearly excluded from the application of the act of state doctrine, such that municipal courts can consider and even challenge foreign judicial acts. In deciding whether a foreign court has acted inappropriately, municipal courts will look to the normal standards by which to judge bias and other breaches of due process. Generally, specific examples of partiality and dependency will be required but this will vary between countries.7

This case also has important implications for any company engaged in business in Asia, where state-owned enterprises and government-linked entities are prevalent. In such situations, the scope of the act of state doctrine may become blurred. The UK Court of Appeal has made it clear that the act of state doctrine does not apply to a country's trading activities and business activities will not be immune from the jurisdiction of courts in other countries.8

Bilateral treaty may be solution to Mongolian stalemate

In brief: Partner David Wenger and Senior Associates Anthony Lepere and John Koshy look at a major resources company's significant announcement that it has filed a notice of investment dispute on the Mongolian Government under the bilateral investment treaty between Singapore and Mongolia.

How does it affect you?

  • A recent announcement by SouthGobi Resources Limited illustrates the possibility of relying upon a bilateral investment treaty as a means of dispute resolution in Mongolia.
  • Foreign investors should carefully consider the structure of their proposed investments in Mongolia, given the possible availability of bilateral investment treaties.
The announcement

SouthGobi Resources announced to the Toronto and Hong Kong Stock Exchanges on 11 July 2012 that SGQ Coal Investment Pte. Ltd (SGQ) has filed a notice of investment dispute on the Mongolian Government under the bilateral investment treaty between Singapore and Mongolia. SGQ is a wholly owned, Singapore incorporated subsidiary of SouthGobi Resources that owns SouthGobi Resources' Mongolian operating subsidiary, SouthGobi Sands LLC.

In the announcement, SouthGobi Resources noted that:

  • its management has determined that it has exhausted all other possible means to resolve an ongoing investment dispute between SouthGobi Sands and the Mongolian authorities;
  • the notice of investment dispute consists of, but is not limited to, the failure by the Mineral Resources Authority of Mongolia to execute the pre-mining agreements associated with certain exploration licenses that include the area known as Zag Suuj and certain areas associated with the broader Soumber Deposit;
  • the notice of investment dispute triggers the dispute resolution process under which the Mongolian Government has a six-month period from the date of receipt of the notice to satisfactorily resolve the dispute through negotiations; and
  • if negotiations between SouthGobi Resources and the Mongolian Government are not successful, then SouthGobi Resources will be entitled to commence conciliation/arbitration proceedings under the auspices of the International Centre for Settlement of Investment Disputes.
Background
Foreign investment in Mongolia

We recently reported that the Mongolian Government has moved to regulate foreign investment in sectors of the economy of strategic national importance. There are also specific provisions that apply where the foreign investor is a state-owned entity. Those provisions are contained in the Law on Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (the Law). The Law establishes a generally applicable regulatory regime under which foreign investment in Mongolia might be refused on national interest grounds.

Bilateral investment treaties

A bilateral investment treaty (BIT) is an agreement between two states under which each undertakes to promote and protect investments made in its territory by people and companies from the other state. BITs generally promote the following key rights and principles:

  • neither contracting state will expropriate, nationalise, or otherwise take over, investments made by nationals of the other state in its territory;
  • the right to fair and equitable treatment for investors, which imposes a corresponding obligation on contracting states to:
    • maintain a stable legal and regulatory framework;
    • respect the legitimate expectations of investors; and
    • deal with investors on a consistent and transparent basis;
  • each contracting state shall ensure that investors from the other state are subject to treatment no less favourable than that which it accords to investors from any third state; and
  • the right to require contracting states to observe obligations entered into.
Bilateral investment treaties in Mongolia

Mongolia has concluded 43 BITs, of which some 37 have come into force. Mongolia concluded a BIT with Singapore on 24 July 1995, and the treaty came into force on 7 January 1996.

Article 1 of the Mongolia-Singapore BIT defines 'investment' to include 'business concessions conferred by law or under contract, including any concession to search for, cultivate, extract or exploit natural resources'. Article 2(1) provides that the Mongolia-Singapore BIT shall apply to investment in the territory of Mongolia made by companies incorporated in Singapore. Accordingly, the activities and operations of SouthGobi Sands may fall within the scope of the Mongolia-Singapore BIT, and the incorporation of SGQ in Singapore may confer standing on SouthGobi Resources to rely upon the Mongolia-Singapore BIT.

As with most BITs, the substantive rights under the Mongolia-Singapore BIT are complemented by a procedural right to enforce them through a system of international arbitration supported by the World Bank.

The substantive rights under the Mongolia-Singapore BIT reflect the key rights and principles typically seen in most BITs. In respect of expropriation, the Mongolia-Singapore BIT provides protection against expropriation or nationalisation of an investment except where such measures are taken:

  • for any purpose authorised by law;
  • on a non-discriminatory basis;
  • according to its laws; and
  • in exchange for compensation.

Such compensation shall, subject to the laws of the contracting states, reflect the value immediately before expropriation and shall be effectively realisable and made without unreasonable delay.

Future developments

We will continue to monitor future developments in this area. If SouthGobi Resources and the Mongolian Government cannot reach a mutually acceptable resolution to their dispute within six months, or if the Mongolian Government refuses to negotiate with SouthGobi Resources, then either party may submit the dispute for conciliation or arbitration by the International Centre for Settlement of Investment Disputes. The centre was established by the Convention on the Settlement of Investment Disputes between the States and Nationals of Other States, which came into effect in Washington on 18 March 1965. Both Singapore and Mongolia are signatories to this convention. While the details of conciliation or arbitration proceedings are likely to be confidential, the commencement of such proceedings would probably be disclosed and would, in itself, be a significant development.

Important notice

This note is non-exhaustive legal commentary only. It has been prepared by international lawyers (who are not Mongolia qualified).

This note is not intended to be, and must not be relied upon for the purposes of, legal advice. If you require legal advice, then please contact us.

(This article was originally published on the Allens website on 17 July, 2012.)

Australia's competition law – a 'mandatory' law for arbitration

In brief: The Federal Court has recently referred claims based on the Competition and Consumer Act 2010 (Cth) to arbitration, even though the parties' arbitration agreement specified that the tribunal was to decide their disputes according to Italian law. Partner Duncan Travis, Senior Associate Andrew Barraclough and Lawyer Anna McMahon report.

How does it affect you?

  • Parties to arbitration agreements can determine the procedural and substantive laws that the arbitral tribunal should apply.
  • There are limits to this autonomy, which can include 'mandatory' laws – laws that purport to apply whether or not they form part of the law chosen by the parties.
  • In Casaceli S.p.A v Natuzzi S.p.A9, the court accepted that the Competition and Consumer Act 2010 (Cth) (the CCA) may apply to an arbitration as a 'mandatory' law. It referred claims under the CCA to arbitration, even though the parties had agreed that their dispute would be decided according to Italian law.

The decision

An Italian company, Natuzzi S.p.A. and, an Australian company, Nataceli Pty Ltd, had an agreement that gave Nataceli exclusive rights to sell Natuzzi's products in New South Wales and the Australian Capital Territory (the dealership agreement).

The parties' relationship broke down, and on 2 March 2012, Natuzzi gave notice of termination of the dealership agreement. Nataceli, with its directors and a related trustee company (the applicants), commenced a proceeding against Natuzzi, a related company and the director of that company (the respondents) in the Federal Court of Australia, alleging that the respondents had, among other things, engaged in unconscionable conduct, misleading or deceptive conduct, exclusive dealing and resale price maintenance, in breach of the CCA.

Natuzzi applied for the matter to be stayed and referred to arbitration. Its application was based on Article 27 of the dealership agreement, which provided that disputes arising out of the agreement were to be referred to arbitration under the International Arbitration Rules of the Chamber of National and International Arbitration in Milan. Article 26 also provided that the agreement was subject to Italian law, and Article 27.2 provided that the arbitrators 'shall decide according to the Italian law'.

The applicants objected to the stay on a number of bases. One was that, in light of the choice of law provisions of the agreement, the court 'should not be satisfied that the national laws of Australia will be applied in an arbitration'. In particular, the applicants submitted that a stay should not be ordered because the arbitrators may not apply the CCA to the dispute.

The decision

Justice Jagot rejected the applicants' submissions, stayed the proceeding and referred the disputes between Nataceli and Natuzzi to arbitration. In reaching this conclusion, her Honour relied on the expert evidence of an Italian professor of law that:

an arbitral [t]ribunal sitting in Italy and deciding under the Rules of the Milan Arbitration Chamber a dispute involving the market of a third country would consider the applicability of the mandatory rules of that country, even if the law governing the merits of the dispute chosen by the parties were a different law.

Accordingly, her Honour decided to refer Nataceli's CCA claims to arbitration on the basis that, as a 'mandatory' law, the arbitral tribunal may apply the CCA, despite the parties' agreement that any disputes should be decided according to Italian law.10

Comment

This decision is not surprising, and is consistent with the approach taken in a number of jurisdictions. The US Supreme Court, for example, has referred claims based on US competition law11 to arbitration where the seat of any arbitration would be in Japan and the parties had agreed that any disputes would be decided in accordance with Swiss law.12 The European Court of Justice has also found, in effect, that arbitral tribunals are required to apply EU competition law by refusing to enforce awards where the tribunal has not done so.13

The decision is a useful reminder that, if parties choose arbitration over litigation, there is a risk that the arbitral tribunal may apply 'mandatory' laws, which may include the CCA (among other competition laws), even if they do not form part of the law of the seat of the arbitration, or a law that the parties otherwise agreed would apply.

Court stays proceedings dealing with related disputes under multiple arbitration laws

In brief: The Supreme Court of Western Australia has stayed proceedings brought by an Australian resources company against a Chinese state-owned enterprise and its Australian subsidiaries, on the ground that the disputes should be referred to arbitration. Special Counsel Nicola Nygh and Lawyers Tom Levi and Catherine Li review the case.

How does it affect you?

  • A tiered dispute resolution clause that grants a party the right to elect to commence arbitration proceedings is binding and enforceable under the International Arbitration Act 1974 (Cth) (IAA) and Commercial Arbitration Act 1985 (WA) (CAA) and can be relied on to obtain a stay of court proceedings.
  • When a party enters into multiple arbitration agreements with different, albeit related, entities, it should ensure that the arbitration law applicable to the agreements is the same so far as possible and that all related disputes between the different parties can be heard together.
  • Where there are related arbitration agreements – some with Australian parties only while other agreements include a foreign party – the Australian parties can agree that the subject matter of their arbitration relates to more than one country. Such an agreement will bring the arbitration between the Australian parties within the scope of the IAA, so that all related arbitration agreements are governed by the same law with, for example, the same appeal rights.
  • Parties can also opt in to section 24 of the IAA, which permits consolidation of arbitral proceedings, or can adopt arbitral rules providing for consolidation of arbitral proceedings.

Background

In 2008, Australian companies Cape Lambert Resources Limited and MCC Mining (Western Australia) Pty Ltd (MCC WA) entered into an agreement under which Cape Lambert agreed to sell mining tenements and related assets to MCC WA (the asset sale agreement). MCC Australia Sanjin Mining Pty Ltd (MCC Sanjin), another Australian company, subsequently substituted for MCC WA as the purchaser under a deed of novation. At the same time, Metallurgical Corporation of China Ltd (MCC), a Chinese state-owned entity, guaranteed the obligation of MCC Sanjin and MCC WA to pay the purchase price (the guarantee).

Under the asset sale agreement, MCC WA and, under the novation, MCC Sanjin, were obliged to act in good faith and use all reasonable endeavours to assist Cape Lambert to obtain the necessary mining approvals for the transaction. If MCC WA/MCC Sanjin did not comply with this obligation, or if Cape Lambert did not obtain the approvals, due to any occurrence outside its control, then MCC WA/MCC Sanjin were required to pay $80 million to Cape Lambert. Under that part of the agreement, on 7 September 2010, Cape Lambert commenced proceedings against three MCC entities, seeking $80 million (the disputed amount).

The MCC entities applied for a stay of Cape Lambert's action, on the basis that the asset sale agreement and the guarantee contained arbitration agreements. The asset sale agreement was subject to the CAA (as a domestic agreement) and the guarantee was subject to the IAA (as an international agreement because MCC was a party).

Cape Lambert responded by seeking an interlocutory injunction requiring MCC to pay the disputed amount into an escrow account under the terms of the guarantee.14

Stay of court proceedings
Elective tiered dispute resolution clauses can constitute binding arbitration agreements

The dispute resolution clauses in the asset sale agreement and the guarantee mirrored each other. Both provided for a tiered dispute resolution process under which a discussion between the parties must occur within 10 business days of a dispute arising, failing which 'either party may refer the dispute for resolution by mediation', and failing that, 'either party may refer the dispute for final and binding resolution by arbitration'. A sub-clause stipulated that 'the procedures prescribed in this clause must be strictly followed to settle a dispute'.

Cape Lambert contended that the use of the words, 'may', created options to arbitrate, rather than binding arbitration agreements for the purpose of s53 of the CAA and s7 of the IAA. Justice Corboy applied the High Court's decision in PMT Partners15 and found a term that conferred an election on one party to commence arbitration does constitute a valid arbitration agreement. In particular, his Honour interpreted the sub-clause mandating the parties to follow the dispute resolution regime as an indication that the regime was not intended to be merely facilitative. Justice Corboy considered that the PMT Partners decision applied to the CAA and IAA equally.

Asset sales agreement: Are 'best endeavours' and 'good faith' suitable for arbitration?

His Honour held that the dispute as to whether MCC Sanjin had used best endeavours and acted in good faith constituted the 'very kind of differences that parties must have contemplated when they agreed the dispute resolution provisions'. Cape Lambert's contentions that these issues would be more suitable for determination by a court were rejected because they 'reflect a view about arbitration that the court should no longer foster'. The court did not accept Cape Lambert's contention that the MCC entities would not comply with an arbitral award. The proceedings against MCC Sanjin under the asset sales agreement were therefore stayed under s53 CAA.

Guarantee: Paying the disputed amount into escrow

The guarantee provided that if there was any dispute between the parties to the guarantee regarding whether an amount was payable, that amount would be paid into an escrow account pending final resolution of the dispute. MCC argued that, as MCC Sanjin was not a party to the guarantee, there was no dispute between 'the parties to the guarantee'. MCC contended that the obligation to pay the disputed amount into escrow did not arise unless and until: first, it had been determined that MCC Sanjin owed moneys to Cape Lambert under the asset sale agreement; and, second, MCC disputed that money was payable under the guarantee.

Justice Corboy rejected this argument. His Honour considered that the parties objectively intended that a demand for payment of the guaranteed obligation against MCC under the guarantee could be made even if MCC Sanjin disputed its obligation to pay the corresponding amount claimed against it under the asset sale agreement. MCC and MCC Sanjin would dispute the amounts owing on the same grounds, and those disputes would arise contemporaneously and could be resolved under concurrent dispute resolution procedures conducted 'in effect, as a single procedure or so as to ensure consistent outcomes'.

Based on this construction of the parties' objective intentions, Justice Corboy found that the dispute over the escrow payment was a 'dispute for the purpose of engaging the escrow provisions', and was plainly a matter capable of being settled by arbitration.

As MCC had only refused to pay the disputed amount into escrow on the basis of a different (albeit erroneous) construction of the guarantee, it did not manifest an intention not to be bound by the arbitration agreement contained in the guarantee. In the absence of any reason to dismiss the stay application, Justice Corboy granted a stay of the proceedings against MCC.

Interim orders to preserve the parties' rights

Section 7(3) IAA provides that where a court stays proceedings and refers the parties to arbitration, it may make such interim orders as it thinks fit for the purpose of preserving the parties' rights. For the guarantee, Justice Corboy found that the rights of parties would be preserved by having the disputed amount paid into an escrow account pending the outcome of the mediation (ie prior to any arbitration). His Honour took account of the objective intentions of the parties and the avoidance of delay and uncertainty should the dispute be resolved in favour of Cape Lambert.

Justice Corboy emphasised that should the disputes progress to arbitration, the interim order would lapse and the arbitrator would be empowered to revisit the escrow payment issue. His Honour did so notwithstanding that Cape Lambert had argued that the stay application should be denied on the basis that MCC would be unlikely to comply with an arbitral award. Arguably, by making an interim order to bring the disputed amount into an escrow account in Australia, the court took steps that would make it easier for Cape Lambert to enforce any arbitral award that may eventually be made in its favour.

Conclusion

This decision demonstrates Australian courts' increasing willingness to give effect to international arbitration agreements. It is notable that, in this case, the court did so notwithstanding that the tiered dispute resolution clause included arbitration as a step that could be elected by one of the parties. Even when a dispute is referred to arbitration, the courts are empowered to make orders to preserve the parties' rights pending the appointment of an arbitrator. Once an arbitral tribunal is appointed, that tribunal similarly has the power to order 'interim measures' under the IAA to protect the rights of the parties.

The interesting feature of this case is that disputes arose under two separate agreements, between different (albeit related) parties domiciled in China and Australia respectively, and each was subject to different arbitration laws with different appeal rights. If MCC maintains its argument that it is not required to pay the disputed amount into escrow until the dispute with MCC Sanjin is resolved, it is likely that the parties will be forced into having two separate arbitrations. In that case, the process will be simpler if the parties decide to appoint the same arbitral tribunal. However, the consolidation of multiple arbitral proceedings appears unlikely absent prior agreement.

Consolidation of arbitral proceedings can be facilitated by careful drafting of related arbitration agreements. First, where there is a related international arbitration agreement, the parties to a domestic arbitration agreement can agree that the subject matter of the arbitration relates to more than one country. This will bring what would otherwise be a domestic arbitration under the scope of the IAA,16 so that both arbitration agreements are governed by the same arbitration law. Such an agreement can either be made in the arbitration agreement or at a later date, although it can be difficult to reach agreement at a later date. Second, the parties should either opt into s24 of the IAA, which permits consolidation of arbitral proceedings, or adopt arbitral rules that provide for the consolidation of arbitral proceedings.

Footnotes
  1. Bharat Aluminium Co v Kaiser Aluminium Technical Service Inc, 6 September 2012.
  2. Bhatia International v Bulk Trading SA (2004) 2 SCC 105.
  3. Including a relatively recent decision, Venture Global Engineering v Satyam Computer Services Ltd (2008) 4 SCC 190, applying the leading authority Bhatia International v Bulk Trading SA (2004) 2 SCC 105.
  4. Yukos Capital SARL v OJSC Rosneft Oil Company [2012] EWCA Civ 855.
  5. Yukos Capital SARL v OAO Rosneft, Amsterdam Court of Appeal (2009), Case number 200.005.269/01.
  6. Oetjen v Central Leather Co 246 US 297 (1918) at 245 – 246, per Justice Clarke.
  7. AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] 4 All ER 1027, paragraph 101, per Lord Collins.
  8. The Plasya Larga [1983] 2 Lloyd's Rep 171 (CA); Korea National Insurance Corporation v Allianz Global [2008] EWCA Civ 1355.
  9. [2012] FCA 691.
  10. The seat of the arbitration may also have been in Italy. This is not clear from the judgment, but the extract of the arbitration agreement does not refer to a seat for the arbitration, and Article 11 of the procedural rules chosen by the parties provides that:
    in the absence of an agreement by the parties, the seat of the arbitration is at the seat of the Chamber of Arbitration of Milan, unless the Arbitral Council, taking into account special requests by the parties or the characteristics of the arbitration, determines a different seat before the first hearing before the arbitral body.
  11. In particular, Shearman Act 15 U.S.C. ? 1.
  12. Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc 473 US 614 (1985).
  13. Eco Swiss China Time Ltd v Benetton International NV [1999] ECR 1-3055 (C-126/97).
  14. Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2012] WASC 228.
  15. PMT Partners Pty Ltd v Australian National Parks and Wildlife Service (1995) 184 CLR 301.
  16. Article I (3)(c) UNCITRAL Model Law on International Commercial Arbitration incorporated in the IAA.

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