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Focus: Federal Court confirms Australia's pro-arbitration policy

8 March 2011

In brief: The Federal Court has confirmed that Australian courts will adopt a pro-arbitration approach in relation to the enforcement of foreign awards. Partner Stephen McComish and Lawyer Kristian Maley report.

How does it affect you?

Although it is possible that the decision will be appealed, the judgment in Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd 1 suggests that:

  • Parties can be more confident that Australian courts will uphold their agreement to arbitrate.
  • An international arbitral award can generally be enforced in Australia without the need to reopen the substance of the dispute in court.
  • Australian entities facing a foreign arbitration should assume that any award rendered in the arbitration will be enforceable in Australia in the same way as an Australian court judgment.

Background

Uganda Telecom and Hi-Tech entered into an agreement that, in essence, required Uganda Telecom to provide telecommunications services to Hi-Tech. Uganda Telecom commenced arbitral proceedings against Hi-Tech, alleging that Hi-Tech had failed to provide a guarantee or pay invoices, as required by the agreement.

The arbitration

Hi-Tech failed to respond to Uganda Telecom's request for arbitration. Consequently, Uganda Telecom appointed an arbitrator, and the arbitration was conducted in Uganda, without any participation by Hi-Tech.

The arbitrator delivered an award against Hi-Tech, and Uganda Telecom applied to the Federal Court to register the award as an Australian judgment.

Void for uncertainty?

Hi-Tech argued that the arbitration clause was uncertain, and therefore void, because it did not specify various matters that were necessary in order to conduct the arbitration. The arbitration clause read: 'Any lawsuit, disagreement, or complaint with regards to a disagreement, must be submitted to a compulsory arbitration.'

Although the arbitration clause did not expressly specify the law applicable to the arbitration, the agreement did state that Ugandan law applied to it.2 In common with other arbitration laws based on the UNCITRAL Model Law on International Commercial Arbitration, the Ugandan Arbitration and Conciliation Act 2000 (the ACA) includes provisions for 'filling in the blanks' in the event that parties do not specify certain matters in their arbitration agreement. These provisions addressed all of the alleged deficiencies in the arbitration clause; namely, that the clause did not specify the:

  • place of arbitration;3
  • law applicable to the arbitration;4
  • number of arbitrators;5
  • procedure for the appointment of an arbitrator or arbitrators;6 or
  • procedure for the arbitration.7

Justice Foster found that the procedures for determining these matters were 'meticulously followed in the present case.' 8 He rejected Hi-Tech's argument that the arbitration clause was void under Ugandan law, because the ACA 'provided the machinery to facilitate arbitration once the arbitration clause was engaged.'9

Errors of fact and law

Hi-Tech contended that the court should decline to enforce the award on the basis that the arbitrator made factual and legal errors in making it. As Justice Foster noted, an error of fact or law in the arbitrator's reasoning is not a ground for refusing enforcement of a foreign award under Australian law.

A general power to refuse enforcement?

Justice Foster then considered a related (though slightly more nuanced) argument by Hi-Tech: that the court can inquire as to the correctness of an arbitral tribunal's decision in order to determine whether the award is contrary to Australian public policy, or under the court's general discretion to refuse enforcement.10

Rejecting this argument, Justice Foster said that Australian courts have no general discretion to refuse enforcement of a foreign award.11 His Honour said that this is now clear, as a consequence of recent amendments to the International Arbitration Act 1974 (Cth) (although he appears to doubt that Australian courts ever had a general discretion to refuse enforcement).12

Justice Foster also said that Australian public policy does not provide a basis for reopening the merits of an arbitration. On the contrary, the amendments to the International Arbitration Act clarify that public policy considerations require the court 'to enforce such awards whenever possible in order to uphold contractual arrangements entered into in the course of international trade.'13

The relevant amendment to the International Arbitration Act is the insertion of section 2D, which came into effect on 6 July 2010. It states that the objects of the Act include facilitating:

  • international trade and commerce, by encouraging the use of arbitration; and
  • the use of arbitration agreements made in relation to international trade and commerce.

As Justice Foster noted, Australian courts have in the past taken a rather 'conservative' approach to the enforcement of foreign arbitral awards. He referred to Australian cases in which courts have found themselves to have a broad discretion to refuse enforcement of foreign awards.14 This led to one court refusing enforcement on the basis that an Australian court would not have made orders in terms of the tribunal's award.15

Justice Foster said that these cases were both inconsistent with the public policy apparent from s2D of the International Arbitration Act, and inconsistent with the purposes of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which informs the enforcement provisions of the International Arbitration Act.

He said that public policy, and the purposes of the Convention, require Australian courts to apply the 'pro-enforcement bias' that is evident from decisions of United States courts.16 Consequently, the court's power to refuse enforcement on the basis of public policy 'should be narrowly interpreted',17 and generally is not to be exercised on the basis of '[e]rroneous legal reasoning or misapplication of law' by the arbitrator.18

Consequences for users of arbitration

The judgment in Uganda Telecom is the first decision applying the 2010 amendments to the International Arbitration Act. At the time of writing, it is still open to the parties to appeal it. However, the judgment suggests that, following the amendments:

  • Parties can have greater confidence that Australian courts will uphold their agreement to arbitrate.
  • An international arbitral award will be enforced in Australia without the need to reopen the substance of the dispute in court. Previous Australian cases suggested that, in some circumstances, a court hearing an application for enforcement might consider the merits of the dispute.
  • Parties facing the enforcement of a foreign arbitral award in Australia should appreciate that any award rendered in the arbitration will normally be enforceable in Australia in the same way as an Australian court judgment. Enforcement will only be refused on certain limited bases; namely, if:
    • the arbitration agreement is unenforceable;
    • certain procedural irregularities occurred during the arbitral proceedings, eg if a party did not receive notice of the proceedings;
    • the award deals with matters that are beyond the scope of the arbitration agreement or that cannot be settled by arbitration;
    • the award has been set aside by a court at the seat of the arbitration; or
    • enforcing the award would be contrary to public policy.
Footnotes
  1. [2011] FCA 131. 
  2. At [27]. 
  3. Section 20(1).
  4. Section 28(3). 
  5. Section 10. Under the ACA, the default number of arbitrators is one, and not three, as in the Model Law. 
  6. ACA ss 11(2)(b), 11(3)(b), 11(4)(a), 11(5), 11(6), 67, 68. See para [78] of the decision. 
  7. Section 19. 
  8. At [78].
  9. At [83].
  10. At [126], referring to the bases for refusing enforcement in s8(5) of the International Arbitration Act.
  11. At [132].
  12. At [132].
  13. At [126].
  14. Corventia Technology Ltd v Clough Engineering Ltd (2004) 183 FLR 317; Resort Condominiums Inc v Blowell [1995] 1 Qd R 406.
  15. Resort Condominiums Inc v Blowell [1995] 1 Qd R 406 at 428-243, referred to in Uganda Telecom at [130].
  16. At [129] and [132], referring to Karaha Bodas Co, LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (2004) 364 F 3d 274 at 307.
  17. At [132].
  18. At [133], quoting Karaha Bodas at 306.

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