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Focus: International arbitration laws overhauled

1 July 2010

In brief: The International Arbitration Amendment Act 2009 (Cth) has been passed by Federal Parliament, placing Australia at the forefront of international arbitration lawmaking. Special Counsel Nicola Nygh (view CV), Lawyer Dr Sam Luttrell and Law Graduate Alison Matthews report.

How does it affect you?

  • When the International Arbitration Amendment Act 2009 (Cth) (the IAA Amendment Act), updating the International Arbitration Act 1974 (Cth) (the IAA), comes into force:
    • arbitration agreements concluded in almost any form – including orally and by electronic means – will be valid and enforceable, provided that there is a record of the agreement being made;
    • arbitrators will have the power to grant interim measures of protection necessary to preserve a party's rights while the arbitration is on foot, and to order that property be inspected and experiments be conducted by experts and the parties;
    • it will no longer be necessary to go to court to obtain an order for security for costs, as the arbitrators will have the power to make such an order themselves;
    • state law will have a more limited role in enforcing foreign arbitral awards, the Federal Court's role being increased both in supervisory and enforcement contexts;
    • it will be easier to progress an arbitration where the respondent refuses to participate; and
    • there will be more clarity on the 'public policy' defence to enforcement, with fraudulent and corrupt practices and denials of natural justice entitling the court to refuse enforcement, which may reduce the scope for enforcement defences based on offence to 'substantive' public policies.

The Model Law

The IAA is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (the Model Law), a template national law drafted in consultation with UNCITRAL member states. It has been adopted by nearly 50 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 UNCITRAL revised the template in 2006. The 2006 version of the Model Law includes an expansion of the definition of 'agreement in writing'1 and detailed rules for the granting of interim measures of protection2.

With the exception of the rules for ex parte interim measures of protection (which have not been taken up), these 2006 changes to the Model Law have been adopted in the IAA Amendment Act.

Model Law Plus provisions

The IAA Amendment Act also adds a set of non-Model Law (Model Law Plus) provisions, intended to clarify the IAA's operation and support the practice of international arbitration in Australia.

The Model Law Plus amendments to the IAA include:

  • elucidating, consistently with the enforcement jurisprudence of the courts of New York Convention member states, the circumstances in which enforcement of a foreign arbitral award may be refused for offence to public policy (section 7A);
  • the adoption of a 'real danger' test for bias challenges to arbitrators (as laid down by the House of Lords in R v Gough3 ), which will replace the 'reasonable apprehension of bias' test applicable at common law and make it harder to launch challenges to arbitrators in international disputes (s18A);
  • a clarification that the Model Law applies to international arbitrations in Australia to the exclusion of the state Commercial Arbitration Acts (s21), directed at addressing the Eisenwerk4 problem);
  • rules for the granting of subpoenas to give oral and documentary evidence (s23);
  • rules setting out the circumstances in which information created for, or adduced as evidence in, an international arbitration (s23C), may be disclosed, informed by the High Court's decision in Esso Australia Resources Ltd v Plowman5; and
  • more detailed rules regarding the awarding of costs (s27).

Comments

The amendments are sure to attract a good deal of attention from both the community of Model Law countries and the users of international arbitration. Overall, the amendments will increase the efficiency of arbitration and enhance the assistance that Australian courts may give arbitral proceedings.

However, the precise effect of some of the IAA amendments will not be known until they are tested in Australian courts. The rules for the 'by reference' incorporation of arbitration clauses from one contract into another will, for example, need to be reconciled with existing common law principles requiring express reference to the arbitration clause (rather than a general reference to the contract in which the clause is contained). Similarly, the interaction of the s18A 'real danger' test for bias challenges with existing common law principles has the makings of an appeal point.

The amendments must be evaluated in the context of the broader project of domestic arbitration law reform that is taking place at the state level, where new Commercial Arbitration Acts based on the Model Law, with Model Law Plus provisions, are also proposed. When these laws come into force at the state level, there will be much greater consistency between the laws relating to domestic and international arbitration in Australia. It is expected that this uniformity will make Australia a more suitable venue for dispute resolution, both domestically and internationally.

Footnotes
  1. Article 7, Option 1.
  2. Chapter IV(A)
  3. [1993] AC 646.
  4. Eisenwerk v Australian Granites Ltd [2001] 1 Qd R 461.
  5. (1995) 128 ALR 391.

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