Lack of uniformity in enforcement of international arbitral awards - International Trade & Investment

In brief - Recent decision highlights inconsistency

A recent decision in the Court of Appeal of Victoria in the case of IMC Aviation Solutions Pty Limited v Altain Khuder LLC (2011) VCA 248 (22 August 2011) highlights the problem of the lack of uniformity in enforcement of international arbitral awards.

IMC Mining appointed operations manager of iron ore mine

Altain Khuder LLC, a mining company incorporated in Mongolia, entered into an Operations Management Agreement (OMA) with IMC Mining Inc, a company incorporated in the British Virgin Islands but which had an address in Brisbane. IMC Mining was appointed the operations manager of an iron ore mine in the south west of Mongolia. Disputes under that agreement were to be referred to arbitration in Mongolia.

An arbitration was duly conducted and an award published. The only parties identified in the award were Altain and IMC Mining Inc. The award provided, inter alia, that IMC Mining had a liability to pay US $5,903,098.20 to Altain. Another part of the orders was as follows:

IMC Mining Solutions Pty Ltd of Australia (IMC Solutions), on behalf of IMC Mining Inc. Company of Australia, pay a sum charged against IMC Mining Inc. Company of Australia pursuant to this arbitral award.

Altain attempts to enforce award, IMC succeeds in having orders set aside

Altain sought to enforce this Mongolian arbitration award in Victoria. The matter came before Croft J in the Victorian Supreme Court, where His Honour found that Altain had complied with its obligations under The International Arbitration Act 1974 (As Amended) (Cth) which gives effect in Australia to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, he dismissed the application which IMC Solutions made to have the orders which had been made on 20 August 2010 set aside (when he had heard the plaintiff's ex parte application to have the award registered in Victoria). When he did so he reserved to IMC Solutions the right to apply to the court to have those orders set aside.

IMC Solutions appealed to the Victorian Court of Appeal and were successful in having those orders set aside.

Provisions of The International Arbitration Act 1974

It is necessary to set out the relevant provisions of The International Arbitration Act 1974 in order to understand the competing arguments which found favour with Croft J and the three Court of Appeal judges.

Section 8, in relevant respects, reads as follows:

Section 8 - Recognition of foreign awards

(1) Subject to this Part, a foreign award is binding by virtue of this Act for all purposes on the parties to the arbitration agreement in pursuance of which it was made.

(2) Subject to this Part, a foreign award may be enforced in a court of State or Territory as if the award were a judgment or order of that court.

(3A) The court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and in (7).

(5) Subject to subsection (6), in any proceedings in which the enforcement of a foreign award by virtue of this part is sought, the court may, at the request of the party against whom it is invoked, refuse to enforce the award if that party proves to the satisfaction of the court that:

that party, being a party to the arbitration agreement in pursuance at which the award was made, was, under the law applicable to him or her, under some incapacity at the time when the agreement was made;
the arbitration agreement is not valid under the law expressed in the agreement to be applicable to it or, where no law is so expressed to be applicable, under the law of the country where the award was made;
that party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his/her case in the arbitration proceedings;
the award deals with a difference not contemplated by, or not falling within the terms of, the submission to arbitration, or contains a decision on a matter beyond the scope of a submission to arbitration;
the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
the award has not yet become binding on the parties to the arbitration agreement or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.

(7) In any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may refuse to enforce the award if it finds that:

the subject matter of the difference between the parties to the award is not capable of settlement by arbitration under the laws enforced in the State or Territory in which the court is sitting; or
to enforce the award would be contrary to public policy.

(7A) To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if:

the making of the award was induced or affected by fraud or corruption; or
the breach of the rules of natural justice occurred in connection with the making of the award.

Section 9 - Evidence of awards in arbitration agreements

(1) In any proceedings in which a person seeks the enforcement of a foreign award by virtue of this part, he or she shall produce to the court:

the duly authenticated original award or a duly certified copy; and
the original arbitration agreement under which the award purports to have been made or a duly certified copy.

The issue, in essence, in the proceedings before Croft J and the Court of Appeal was whether the fact that IMC Solutions was not a party to the OMA was fatal to Altain's attempt to enforce the award in Victoria.

Court of Appeal rejects Altain's argument

In a commendably concise judgment the Chief Justice of Victoria, Warren CJ, held that because IMC Solutions was not named as a party on the face of the OMA Altain had the legal burden of establishing, as a threshold issue, that IMC Solutions was a party to the arbitration agreement. Essentially the argument which was put forward on behalf of Altain was that the question as to whether an award debtor is a party to the relevant arbitration agreement is a matter for determination under s.8(5)(b), rather than as a threshold issue under s.8(1).

Her Honour the Chief Justice rejected that approach for three main reasons:

Firstly she said such a construction would render s.8(1) superfluous. Secondly, she said, s.8(1) could not be read subject to s.8(3A). As she said, it is clear that before the award creditor can enforce the award, it must produce the documents required by s.9(1) and the award debtor could therefore resist enforcement by arguing that the documents produced do not meet the description set out in s.9(1).

In her view, s.8(3A) "simply circumscribes the defences on which the award debtor can rely to resist enforcement once the award creditor has discharged some preliminary burden." Thirdly she held:

"since an award is only binding on the parties to the arbitration agreement pursuant to which it was made, it must be possible for the award debtor to resist enforcement on the ground that it is not a party to that agreement. Sub-sections 8(5) and 8(7) make no express provision for raising such a defence."

Her Honour distinguished two United Kingdom decisions that were relied upon (Dardana and Dallah to which reference will be made below) on the basis that the equivalent provision to s.8(1) in the UK Act is s.101(1) which provides that "an award should be recognised as binding" not on the parties to the applicable arbitration agreement but "on the persons as between whom it (the award) was made".

UK decisions considered by Court of Appeal

Hansen JA and Kyrou AJA, in a joint judgment in the Victorian Court of Appeal, also allowed the appeal. Their Honours took the view that where the contents of the arbitration agreement and the award do not provide prima facie evidence that an award has been made by a foreign arbitral tribunal granting relief to the award creditor against the award debtor, that the award was made pursuant to an arbitration agreement; and the award creditor and the award debtor are parties to the arbitration agreement, the court should not proceed ex parte but should require the award creditor to give notice of the proceeding to the award debtor and for the matter to proceed inter partes.

At that stage, once the award creditor establishes a prima facie entitlement to an order enforcing the foreign arbitral award, the award debtor can only resist it by proving one of the matters set out in sub-sections 8(5) or in (7). Their Honours then considered whether s. 8(3A), s.8(5) and s.8(7) are subject to s.8(1). Having listed all the reasons why they should be and why they should not be they concluded that they are not subject to s.8(1) and therefore differed from Her Honour the Chief Justice. In doing so they referred to the two United Kingdom decisions in Dardana Ltd v Yukos Oil Co (2002) 2 Lloyds Rep 326 and Dallah Real Estate and Tourism Holding Company v Ministry of Religious Affairs, Government of Pakistan (2010) UKSC 46.

Dardana v Yukos Oil decision

In the former case, a Swedish arbitration panel had concluded that Yukos Oil Co was party to a contract which had originally been between other companies. It had commenced proceedings in the Swedish courts to have the award set aside. Steel J in the High Court in London gave permission for the award to be enforced but gave liberty for application to be made to set aside that order.

In the leading judgment in the Court of Appeal, Mance LJ said as follows:

"A successful party to a New York Convention Award, as defined in s.100(1) has a prima facie right to recognition and enforcement. At the first stage, a party seeking recognition or enforcement must, under s.102(1), produce the duly authenticated award or a duly certified copy and the original arbitration agreement or a duly certified copy. The arbitration agreement means an arbitration agreement in writing, as defined in s.5. Once such documents have been produced, recognition or enforcement may be refused at the second stage only if the other party proves that the situation falls within one of the heads set out in s.103(2). The issue before us concerns the content of and the relationship between the first and second stages. The first stage must involve the production of an award which has actually been made by arbitrators. (Counsel) accepted that it would, for example, be sufficient to produce an award which had been forged. However, it must be irrelevant at that stage that the award is as a matter of law invalid, on any one of the grounds set out in s.103(2), since otherwise there would have been no point in including s.103(2). The award so produced must also have been made by arbitrators purporting to act under whatever is the document which is at the same time produced as the arbitration agreement in writing. That, it seems to me, is probably sufficient to satisfy the requirement deriving from the combination of s.100(1) and s.102(1) to produce "an award made, in pursuance of an arbitration agreement, .." The words "in pursuance of an arbitration agreement" could in other contexts require the actual existence of an arbitration agreement. But they can also mean "purporting to be made under". Construed in the latter sense the overlap and inconsistency to which I have referred are avoided. Any challenge to the existence or validity of any arbitration agreement on the terms of the document on which the arbitrators have acted falls to be pursued simply and solely under s.103(2)(b)."

In discussing what an applicant to enforce an Arbitration award was required to produce, Mance LJ went on to say:

"One cannot produce an agreement made otherwise than in writing. However, one can produce terms in writing, containing an arbitration clause, by reference to which agreement was (allegedly) reached, and one can produce a record of an arbitration agreement made in writing with (allegedly) the authority of the parties to it. That, it seems to me, is all that is probably therefore required at the first stage. That conclusion supports, rather than undermines the further conclusion that, at the first stage all that is required by way of an arbitration agreement is apparently valid documentation, containing an arbitration clause, by reference to which the arbitrators have accepted that the parties had agreed an arbitration or in which the arbitrators have accepted that an agreement to arbitrate was recorded with the parties' authority. On that basis, it is at the second stage, under s.103(2) that the other party has to prove that no such agreement was ever made or validly made."

In the subsequent case of Dallah Real Estate and Tourism Holding Company v Ministry of Religious Affairs, Government of Pakistan a similar issue arose as to whether the government of Pakistan was a party to the arbitration agreement.

Lord Mance (as he had become by the time of this decision) said as follows in the Supreme Court:

"The issue regarding the existence of any relevant arbitration agreement falls to be determined by the Supreme Court as the United Kingdom Court under provisions of national law which are contained in the Arbitration Act 1996 and reflect Article V(1)(a) of the New York Convention. The parties' submissions before the Supreme Court proceeded on the basis that, under s.103(2)(b) of the 1996 Act and Article V(1)(a) of the Convention, the onus was and is on the government to prove that it was not a party to any such arbitration agreement. This was so, although the arbitration agreement upon which Dallah relies consists in an arbitration clause in the agreement which on its face only applies as between Dallah and the Trust. There is no challenge to, and no attempt to distinguish, the reasoning on this point in Dardana."

Lord Collins JSC in the Dallah case also referred to the fact that notwithstanding that paragraph 1(a) of Article V of the Convention - which is reflected in s.8(5)(b) of the Act - deals expressly only with the case where the arbitration agreement is not valid:

"the consistent international practice shows that there is no doubt that it also covers the case where a party claims that the agreement is not binding on it because that party was never a party to the arbitration agreement."

Singaporean decision considered

One of the cases which had been relied upon heavily by the first instance Judge in the Victorian case was the Singaporean decision of Prakash J in Aloe Vera of America Inc v Asianic Food(s) Pte Limited. (2006) SGHC 78. This was another case in which it was sought to be argued that the person against whom an award was sought to be enforced was not a party to the arbitration award. Her Honour limited herself to considering that issue, not as a threshold question, but under the rubric as to whether it was "not valid under the law to which the parties have subjected it", within the meaning of that phrase in s.31(2)(b) of the Act which gave effect to the Convention in Singapore. After commenting on the evidence which that person called, relating to the law of Arizona, which was not independent expert evidence, her Honour said:

"Since Mr Chiew had not adduced expert evidence to show that the arbitrator's findings are incorrect under Arizona law I agree with the submission made by the plaintiff that there are no extraordinary circumstances warranting a review of the award. I am not the supervisory Court and cannot review the arbitrator's decision in the same way that an Arizona Court could. For me to refuse to enforce the award on this ground, I would need to be satisfied that, under the law of Arizona, the arbitration agreement was invalid vis a vis Mr Chiew and that the arbitrator was not entitled to find that Mr Chiew was a party to the agreement and the arbitration. No basis has been given to me for such a finding."

For more information about trade and transport law, please see the website of CBP Lawyers or email Stuart Hetherington at swh@cbp.com.au.

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Australia: Lack of uniformity in enforcement of international arbitral awards