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Focus: Enforcement of foreign arbitral awards in Australia

15 September 2011

In brief: The Victorian Court of Appeal has clarified a number of important issues regarding the enforcement of foreign arbitral awards in Australia. Partner Peter O'Donahoo (view CV) , Senior Associate Andrew Barraclough and Lawyer Tim Maxwell report.

How does it affect you?

In Altain Khuder LLC v IMC Mining Inc & Anor, the Victorian Supreme Court ordered the enforcement of a foreign arbitral award against a party that was not named in the relevant arbitration agreement. On 22 August 2011, the Court of Appeal overturned the decision1 and clarified a number of issues for parties seeking to enforce, or resist enforcement of, foreign arbitral awards in Australia under the International Arbitration Act 1974 (Cth) (the Act).2 According to the majority's decision:

  • in an application to enforce an award, the applicant must establish, prima facie, that the award debtor and creditor are parties to the relevant arbitration agreement. Where they are not named as parties to the agreement, producing the award and agreement will be insufficient to overcome this burden. Additional evidence will be required, and the application should be made inter partes rather than ex parte;
  • a person may resist enforcement of an award on the basis that it was not a party to the arbitration agreement, even though it did not participate in the arbitration or apply to set aside the award at the seat of the arbitration;
  • a court called on to enforce an award has the power to determine for itself whether the tribunal has jurisdiction over the parties, and is not limited by any findings made by the tribunal in this regard;
  • there is not a 'heavy' onus on respondents seeking to establish the defences in sections 8(5) and (7) of the Act (which reflect those in Article V(1) of the New York Convention) – the standard is simply the 'balance of probabilities'; and
  • unsuccessfully resisting enforcement of an award will not, of itself, justify an award of indemnity costs.

Background

This case arose out of an 'operations management agreement' (OMA) between Altain Khuder LLC (Khuder) and IMC Mining Inc (IMC Mining) relating to an iron ore mine in Mongolia. The OMA contained an arbitration agreement, and, after a dispute arose concerning the provision of services under the OMA, Khuder commenced an arbitration under the rules of the Mongolian National Arbitration Center.

The arbitral tribunal found that it had jurisdiction over the matter, made an award in Khuder's favour for US$5,903,098 plus an arbitration fee of US$50,257. It also ordered that another entity, IMC Mining Solutions Pty Ltd (IMC Solutions),3 pay this sum 'on behalf of' IMC Mining.

Khuder subsequently applied to the Khan-Uul District Court in Mongolia to verify the award. Its application was successful and, after sending a letter of demand to IMC Solutions, it made an ex parte application to enforce the award in the Victorian Supreme Court.

On 20 August 2010, a single judge of the Victorian Supreme Court made an order that the award be enforced (the Order). The Order also provided that IMC Mining and IMC Solutions could apply to set it aside within 42 days.

Only IMC Solutions applied to set the Order aside, on bases including that IMC Solutions was not a party to the relevant arbitration agreement. On 28 January 2011, the judge dismissed IMC Solutions' application, and, on 28 January 2011, ordered indemnity costs against it. These orders were stayed until 4pm on 4 February, and, when IMC Solutions sought an extension of the stays, the judge refused and again ordered that it pay Khuder's costs of that application on an indemnity basis.

IMC Solutions appealed the Order, the dismissal of IMC Solutions' application to have the Order set aside, and the two costs orders.

Decision of the Court of Appeal

All judges allowed the appeal, although there were differences in the approach of the majority (Justices Hansen and Kyrou) and the Chief Justice, including that the majority decided for itself whether IMC Solutions was a party to the arbitration agreement, whereas the Chief Justice would have remitted that issue to the trial judge. The decisions addressed a number of important issues regarding the enforcement of arbitral awards under the Act.

Evidence required in support of an application to enforce a foreign arbitral award

The Court of Appeal confirmed that applications for enforcement of awards under the Act are usually straightforward. The applicant must establish, prima facie, that the award debtor and creditor are parties to the relevant arbitration agreement. Usually this will be achieved by producing the arbitral award and the arbitration agreement in pursuance of which it was made, and, in the Victorian Supreme Court, the application can be made ex parte. The court will then make an order enforcing the award, and the respondent can apply to have the order set aside on grounds set out in sections 8(5) and (7) of the Act, which reflect those in Article V(1) of the New York Convention.

However, the position is different if the award debtor or creditor is not named as a party to the arbitration agreement. When that is the case, evidence other than the award and arbitration agreement will be required to establish that the award debtor and creditor are, prima facie, parties to the agreement. In addition, the enforcement application should be made inter partes rather than ex parte.

Estoppel

The trial judge found that IMC Solutions was estopped from denying it was bound by the award as a result of a number of matters, including its participation in the arbitration proceeding and its failure to challenge the award in the Mongolian courts.

The majority concluded that there was no estoppel, and, in particular, that a person that denies being party to an arbitration agreement has no obligation to apply to set aside the award in the country where it is made. The majority agreed with the English Court of Appeal in Dallah that '[t]he party initiating the arbitration must try to enforce the award where it can. Only then and there is it incumbent on the defendant denying the existence of any valid award to resist enforcement.'4

The Chief Justice also found that there was no estoppel on the facts of this case; however, according to her Honour:

the award debtor's conduct in respect of the arbitration proceeding and any relevant proceedings brought before the courts of the supervisory jurisdiction may have given rise to an issue estoppel, estoppel by convention or some other established category of estoppel. The Act contains nothing to suggest that it was intended to exclude the application of ordinary principles of estoppel.

Enforcing court's power to determine a tribunal's jurisdiction over the parties

Khuder asserted that, as the tribunal had determined that IMC Solutions was a party to the arbitration agreement and that it had jurisdiction to make the award against IMC Solutions, the Court did not have jurisdiction to consider those issues for itself.

The majority rejected this submission. Following the English Court of Appeal's decision in Dallah, it decided that a tribunal's finding that it had jurisdiction over the parties, including whether the parties were parties to the relevant arbitration agreement, has 'no legal or evidential value', and 'whether the arbitrators had jurisdiction is a matter that in enforcement proceedings the Court must consider for itself.'5

Onus of establishing the defences in sections 8(5) and (7) of the Act

The trial judge found that an award debtor must satisfy a 'heavy' onus of proof when asserting a defence to enforcement, which will only be made out by 'clear, cogent and strict proof'.6 His Honour did so primarily on the basis of the Act's 'pro-enforcement bias'. While the majority agreed that the Act should be interpreted in light of this bias, it found that to supplement the ordinary civil onus of proof on the balance of probabilities could not be justified on the language of the Act, which states only that defences must be proved 'to the satisfaction of the court'.7

Indemnity costs

The trial judge awarded indemnity costs against IMC Solutions for both the enforcement proceeding and its application to extend the stay of the trial judge's orders. His Honour did so following authority from Hong Kong, and on the basis of the Act's 'pro-enforcement' policy and his finding that, because of this policy, IMC Solutions ought to have known that its prospects of success were limited.

The Court of Appeal noted that deviating from the ordinary party-party costs orders requires special circumstances, and that there was nothing special about IMC Solutions following the Act's procedure for resisting enforcement:

[t]he fact that an award debtor fails to establish a ground for resisting enforcement of a foreign arbitral award cannot, of itself, constitute special circumstances. Nor can a finding that the award debtor's case was 'unmeritorious' if all that is meant by that expression is that the award debtor failed to persuade the Court to accept his or her evidence and submissions.

Footnotes
  1. Allens Arthur Robinson acted for the appellant at earlier stages of this dispute. This note is based on the facts and findings in the decisions of the Court of Appeal, and all opinions expressed here are based on those facts and findings.
  2. The Act gives force of law in Australia to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
  3. IMC Solutions is now called IMC Aviation Solutions Pty Ltd.
  4. [319], quoting Lord Mance JSC in Dallah [2011] 1 AC 763, 810 [23].
  5. [266-270], quoting, respectively, Lord Mance JSC and Lord Sackville JSC in Dallah [2011] 1 AC 763, 812-813 [30] and 850 [160]. Again, the majority found that in any case it was clear from the face of the award that the tribunal did not, in fact, decide that IMCS was a party to the arbitration agreement; nor did it find any facts that would allow it to do so: [285], [287].
  6. [189-190].
  7. [128-129], [192]. Chief Justice Warren, however, considered that the matters an award debtor must prove under section 8(5)(a)-(e) of the Act ('either fraud or vitiating error on the part of the arbitral tribunal') justified imposing a heavy onus if the ordinary civil standard is to be met: [53].

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