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Focus: Federal Court confirms pro-enforcement approach to foreign arbitration awards

3 October 2013

In brief: The Full Court of the Federal Court has dismissed an appeal from a Federal Court decision to enforce an award rendered in London, confirming a pro-enforcement attitude to foreign arbitration awards that gives significant weight to the decisions of courts at the seat of arbitration. The award debtors had already applied, unsuccessfully, to the English High Court of Justice to have the award set aside on procedural grounds. The Federal Court had agreed with the High Court's decision and further held that it would generally be inappropriate for an enforcement court applying the New York Convention to reach a different conclusion from the court at the seat of the arbitration. Partner Andrea Martignoni (view CV), Senior Associate James Morrison and Lawyer Theodore Souris report.

How does it affect you?

  • The decision is a reminder of the weight to be given to the decision of a court at the seat of the arbitration, which may affect the choice of the seat of arbitration when drafting an arbitration clause.
  • When resisting enforcement of an award, parties should be careful to consider the extent to which any ground has already been relied upon in an unsuccessful application to set aside an award at the seat of the arbitration or may give rise to issues of public policy in the enforcement country.

Background

Coeclerici Asia (Pte) Ltd had commenced arbitration proceedings against the respondents, Gujarat NRE Coke Limited and Mr Jagatramka, to recover prepayments made under a contract for the sale of metallurgical coke. The contract was governed by English law and provided for arbitration in London under the auspices of the London Maritime Arbitrators Association. Before the hearing in the arbitration was held, the parties reached a settlement that provided Coeclerici would be entitled to an immediate consent award, without the need for any pleadings or hearings, if the respondents failed to make any of the settlement payments.

Gujarat Coke and Mr Jagatramka failed to make the required payments and, on 4 February 2013, Coeclerici requested that the arbitral tribunal immediately make an award in its favour. The arbitral tribunal sent an email to the respondents' solicitor, requesting that the respondents provide, by the following day, any reason why the tribunal should not make the award. The respondents' solicitor replied that they did not yet have instructions and, in the following days, argued that the respondents had not been given a reasonable opportunity to present their opposition.

The tribunal made an award, on 14 February 2013, in favour of Coeclerici.

The respondents then applied to the English High Court of Justice to have the award set aside, arguing that they were not provided with a reasonable opportunity to be heard and that there had been a serious irregularity. The respondents' application was dismissed.1

Application to the Federal Court

Coeclerici applied to the Federal Court of Australia to enforce the award under section 8(3) of the International Arbitration Act 1974 (Cth) (the IAA). The respondents resisted enforcement, arguing:

  • again that they were not provided with a reasonable opportunity by the tribunal to present their case in the arbitration (s8(5)(c) of the IAA); and
  • that there was a breach of the rules of natural justice, such that enforcement would be contrary to public policy (s8(7)(b) and 8(7A)(b) of the IAA).

Justice Foster allowed the application for enforcement of the award and, among other things, ordered payment to Coeclerici of the outstanding amounts, and appointed receivers over certain shares that Gujarat Coke and Mr Jagatramka owned in Australia.2 In his reasons, his Honour held that the respondents 'had ample opportunity and more than a reasonable opportunity in which to put their case before the arbitrators'. He found that even if the respondents could not instruct their solicitors in the first few days, there was still ample time for their solicitors to take instructions and put forward detailed submissions before 14 February 2013.

Noting the similarity of the submissions and evidence in the English High Court setting aside proceedings, Justice Foster also held that there was an issue estoppel regarding the 'reasonable opportunity' question because it had already been determined by the English High Court. His Honour held that the matter was probably also res judicata. He found that, even if there were no issue estoppel or res judicata, it would generally be inappropriate for an enforcement court of a New York Convention3 country to reach a different conclusion on the same question as a court at the seat of the arbitration.

Appeal in the Full Court of the Federal Court

The respondents unsuccessfully appealed to the Full Court of the Federal Court.4 In a unanimous judgment, Chief Justice Allsop, Justices Besanko and Middleton agreed with Justice Foster's conclusion that Gujarat Coke and Mr Jagatramka had been given a reasonable opportunity to be heard. The Full Court also agreed with Justice Foster that it will generally be inappropriate for an enforcement court of a New York Convention country to reach a different conclusion on the same question of asserted procedural defects as that reached by a court at the seat of the arbitration.

The Full Court noted that, despite the difference in the relevant arbitration legislation in England and Australia, and the difference in the basic exercise before the English Court in setting aside proceedings and Justice Foster in enforcement proceedings, Justice Foster's decision that the English court had already decided the same issue was correct.

The Full Court also found that it was not necessary to resolve the issue of whether issue estoppel operates in circumstances where an Australian court is considering whether to refuse enforcement of a foreign award for public policy reasons or because a party is unable to present its case. However, the Full Court endorsed Justice Colman's observations in Minmetals Germany GmbH v Ferco Steel Ltd,5 which emphasised the limited circumstances in which a court may be able to do so.

Comment

Justice Foster found that, in rare cases, an enforcing court in a New York Convention country could reach a different conclusion on the same question as a court at the seat of the arbitration. This would suggest that an Australian enforcement court applying the New York Convention could still consider, for example, whether enforcement would be contrary to public policy, although the Full Court's judgment suggests that power would also be limited.

The effect of a decision by a court at the seat of the arbitration refusing to set aside an award has been considered by other enforcement courts applying the New York Convention, including as follows:

  • in Singapore, the High Court has held a party should not be given 'two bites at the cherry' by resisting enforcement on similar grounds to those relied upon on an application to set aside the award;6
  • in Hong Kong, while expressing reservations as to whether questions of enforcement under the New York Convention may be resolved by reference to principles of issue estoppel said to arise from setting aside proceedings, the Court of Final Appeal held that failure to raise public policy grounds in proceedings to set aside the award may not preclude a party from raising an objection to enforcement on public policy grounds;7 and
  • the Paris Court of Appeal held that, in enforcement proceedings under the New York Convention, it was not bound by a decision of the Swiss Federal Court refusing to set aside an award on the basis that the arbitral tribunal purportedly violated a party's right to be heard and failed to comply with the procedure agreed by the parties.8

The Federal Court's decisions confirm a continuing pro-enforcement approach to foreign arbitration awards that gives considerable weight to the decisions of courts at the seat of arbitration.

Footnotes
  1. See Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Limited [2013] EWHC 1987 (Comm).
  2. See Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Limited [2013] FCA 882 (Justice Foster).
  3. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958.
  4. See Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109 (Chief Justice Allsop, Justices Besanko and Middleton).
  5. [1999] 1 All ER (Comm) 315.
  6. Newspeed International Ltd v Citus Trading Pte Ltd, 4 June 2001, OS No 600044 of 2001 (Singapore High Court).
  7. Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111.
  8. Societe Unichips Finanziaria v Gesnouin, 12 February 1993 (Cour d'Appel, Paris).

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