Arbitration Insights December 2022

The latest arbitration news from Australia and abroad 6 min read

In this edition of Allens Arbitration Insights, we look at recent major developments in global arbitration, recent Australian court decisions, and more.

Updates from Allens

Allens was pleased to host several events during this year's Australian Arbitration Week in Melbourne, including:

• the Australian Centre for International Commercial Arbitration (ACICA) Expedited Arbitration Rules Roadshow, hosted in conjunction with ACICA;
• Australia's engagement in the International Centre for Settlement of Investment Disputes reform process, hosted in conjunction with UNCITRAL National Coordination Committee for Australia; and
• a morning with Banco Chambers and Allens.

Tesseract v Pascale - a welcome default position on proportionate liability in arbitration

Whether proportionate liability regimes found in State and Federal legislation can apply in arbitration has long been a vexed issue. These regimes operate to reduce the liability of a respondent in certain cases, on the basis that another concurrent wrongdoer is proportionally responsible for the loss and damage suffered by a plaintiff.

In late October 2022, the South Australian Court of Appeal delivered welcome judicial guidance on this issue, deciding in Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2022] SASCA 107 that proportionate liability provisions do not apply to arbitration, unless there is an express or implied term in the arbitration agreement to the contrary.

The nature of proportionate liability legislative regimes – in particular, the ability for a plaintiff to join third parties to court proceedings, which is not as of right in arbitration – was found to indicate an objective legislative intention that those regimes do not by default apply to arbitration.

As an intermediate appellate court decision, the principles established by Tesseract are likely to apply more broadly across other Australian jurisdictions. The decision is relevant for arbitration participants in all Australian jurisdictions, particularly those who provide or procure services where duties of care may arise and arbitration is used as a dispute resolution method.

Read more here.

Queensland Court of Appeal finds that a clause requiring 'settlement by an arbitrator' is an arbitration agreement

A recent decision of the Queensland Court of Appeal has focused on function over form when it comes to imprecisely drafted arbitration agreements, consistent with the general pro-arbitration view being taken by Australian courts.

The defendant sought a stay under section 8 of the Commercial Arbitration Act 2013 (Qld) of proceedings concerning a contract for the defendant to provide migration agent services to the plaintiff. The defendant argued that, under clause 11 of the contract for those services, the parties agreed to resolve their disputes by arbitration. Clause 11 said that the parties agreed to refer disputes to the Australian Commercial Disputes Centre 'for final settlement by a single arbitrator'. If the parties could not resolve their dispute via this process, they could commence court proceedings. The key issue was whether clause 11 was an arbitration agreement to which the Act applied.

The plaintiff argued that the clause was not a binding arbitration agreement, as it did not specifically require the parties to submit to an arbitration and did not, in fact, require the single arbitrator to engage in arbitration. The trial judge agreed with this argument and found that clause 11 was not an arbitration agreement.

On appeal, the trial judge's finding was overturned, with the Court of Appeal finding that clause 11 was a valid arbitration agreement. In particular, the court emphasised the danger of making 'subtle verbal distinctions' that are contrary to the paramount object of the Commercial Arbitration Act.

Read more here.

Italian government ordered to pay €190 million arbitral award

Rockhopper Exploration has announced that it was awarded €190 million in an ICSID arbitration commenced in 2017 against the Republic of Italy. The three-member tribunal found that Italy had breached its obligations under the Energy Charter Treaty (the ECT), following its ban of oil exploration and production within 12 miles of the coastline. While Italy withdrew from the ECT in 2016, pre-existing investments continue to be protected for 20 years after withdrawal under Article 47(3) of the ECT.

However, Italy has since commenced an annulment proceeding before ICSID, seeking to have the proceeding set aside under Article 52 of the ICSID Convention, which allows a party to request an annulment if the tribunal was not properly constituted, manifestly exceeded its powers, engaged in corruption, seriously departed from a fundamental rule of procedure, or failed to state the reasons on which the award was based.

This case is one of many investor-state disputes that have sparked scrutiny of the ECT, including calls to modernise it to limit protections for fossil fuel investments.

Increased regulation of third party funders in both arbitration and litigation proposed by European Parliament

The European Parliament has passed a resolution recommending greater regulation of third party litigation funders in European, across both litigation and arbitration in the region. The resolution called out arbitration specifically, commenting that while third party funding is less common in European litigation, it is a 'booming phenomenon' in investment arbitration.

As part of its resolution, the European Parliament recommended a cap on funds that funders are entitled to take, as well as restrictions on funders' ability to withdraw funding during proceedings.

Read more here.

Angola ratifies the ICSID Convention

The Republic of Angola has become the 158th Contracting State to the ICSID Convention, which establishes the institutional and legal framework for foreign investment dispute settlement.

As a Contracting State, Angola will participate in the governance of ICSID through representation on the governing body, the ICSID Administrative Council.

See here for a complete list of ICSID Member States.