Allens

Arbitration

Focus: New uniform state arbitration laws to be adopted

13 May 2010

In brief: The Standing Committee of Attorneys-General has agreed to adopt a new model commercial arbitration Bill based on the Model Law on International Commercial Arbitration. This will fundamentally change the way arbitrations are conducted by parties and supervised by state courts. Partner Stephen McComish (view CV) , Special Counsel Nicola Nygh (view CV) and Lawyer Dr Sam Luttrell report.

How does it affect you?

  • When the Commercial Arbitration Bill 2009, also referred to as the Model Commercial Arbitration Bill (the Bill), becomes law:
    • parties will have more freedom to determine the procedure that the arbitrator must follow to resolve their dispute, and the arbitrator will have greater power to prevent delays and abuses of the arbitration process;
    • there will be fewer grounds on which to apply to a court to set aside the arbitrator's award, and no right to apply for judicial review of the award on the basis of a 'manifest error of law';
    • state courts hearing arbitration-related applications will be bound by the Bill's expressly stated 'pro-arbitration' objectives of efficiency, finality and cost-effectiveness; and
    • arbitration practices and principles developed by state and federal courts under the International Arbitration Act 1974 (Cth) (the IAA), and in the markets and courts of other Model Law countries, may be more influential when state courts interpret the new uniform law.

Background

The Standing Committee of Attorneys-General (SCAG) decided to prepare a draft uniform domestic arbitration law in May 2009. Following the SCAG announcement, a consultation draft of the Bill was released for stakeholder comment in October 2009.

The Bill is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (the Model Law). The Model Law is a template national law that was drafted in consultation with UNCITRAL member states. It has been adopted by around 60 countries, including nearly all of the common law states of the Asian region. The first version of the Model Law was settled in 1985, and the template was revised in 2006.

By way of overview, the Model Law gives users of arbitration broad freedom ('party autonomy') to tailor the arbitral procedure to their needs, and restricts the grounds on which an arbitral award may be set aside or refused enforcement (which include denial of natural justice, improper constitution of the tribunal, excess of mandate and offence to public policy). Unless one or more of these grounds are satisfied, the parties are bound by the arbitrator's decision and it can be enforced as though it were a court judgment. The Model Law also allows for certain supervisory and support functions (such as the appointment of arbitrators) to be performed by arbitration institutions rather than courts. The delegation of these functions is consistent with the broader policy of 'keeping the dispute out of court' and ensuring that the objectives of expertise and efficiency are satisfied.

The Bill is based on the 2006 version of the Model Law. However, the complete text of the 2006 revision of the Model Law is not taken up in the Bill: for example, the interim measures provisions have not been adopted in full. The IAA adopts the 1985 version of the Model Law, but a Bill amending the IAA and enacting much of the 2006 text (together with a set of customised provisions) was introduced into Federal Parliament in late 2009. It is likely that this Bill will be passed in the coming months.

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'Australian made' provisions

The Bill makes certain 'Australian made' additions to the text of the Model Law. These additions are known as 'Model Law Plus' provisions. The Bill:

  • sets a higher threshold for bias challenges to arbitrators, requiring that the challenger establish that there is a 'real danger' of perceived bias on the part of the arbitrator (section 12(5)-(6));
  • expressly permits individuals who do not have legal qualifications to represent parties at the hearing of the dispute (s24A(2));
  • places the parties under a general duty to do all things necessary for the proper and expeditious conduct of the arbitration, and not to wilfully delay or prevent an award being made (s24B);
  • allows for the parties to apply to the court for subpoenas (s27A);
  • empowers (on an opt-out basis) the tribunal to make orders consolidating two or more arbitrations if the arbitrations concern common questions of law or fact, or relate to the same transaction (s27C);
  • includes a provision that allows the parties to authorise the arbitrator to act as a mediator, conciliator or 'other non-arbitral intermediary', for the purpose of resolving the dispute, provided that the arbitrator observes the principles of natural justice whatever his or her capacity (s27D);
  • creates opt-out rules for the privacy and confidentiality of the arbitration (s27E-F);
  • provides that, with the consent of the parties or the arbitrator and provided it is likely to save the parties substantial costs, the court may hear and determine questions of law arising out of the arbitration (s27J);
  • confers on the arbitrator (on an opt-out basis) the power to order specific performance (s33A); and
  • contains detailed rules for the determination and allocation of liability to pay costs (s33B-D) and interest (s33E-F).

The Model Law Plus provisions reflect both Australian common law developments and international arbitration practice.

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The Bill's effect

When the Bill becomes law:

  • domestic users of arbitration will have more freedom to agree on the procedures they use to resolve their dispute so that they can make arbitration more efficient and less expensive than litigation, and parties will be under a general duty to conduct the proceedings efficiently and refrain from abuses of the arbitration process;
  • it will be harder to remove arbitrators because of a lack of independence and impartiality, as challengers will need to establish that there is a 'real danger' that the arbitrator is biased, where previously the common law 'reasonable apprehension' test applied;
  • arbitrators will have broad default powers, including the power to compel the parties to conduct the dispute efficiently, unless the parties agree otherwise;
  • arbitrators will be able to order specific performance, unless the parties agree otherwise;
  • arbitral proceedings will be private and confidential, unless the parties agree otherwise; and
  • state courts will have less power to intervene during an arbitration, and will be bound to supervise arbitrations in a manner that is consistent with the paramount objectives of ensuring the efficiency, finality and cost-effectiveness of the arbitration process.

In terms of jurisprudence, once the Bill becomes law, principles of arbitration law developed by state and federal courts applying the IAA, as well as principles developed in other Model Law countries, may be treated as persuasive authorities in Australian state courts. A corresponding effect may be that, because the English Arbitration Act 1996 is not based on the Model Law, the persuasive value of English court decisions on matters relating to arbitration is diminished.

The passage of the Bill will significantly improve the framework for domestic arbitration in Australia and, when taken in the context of the proposed amendments to the IAA, place Australia at the forefront of legal development in the community of Model Law countries.

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