In TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of
the Federal Court of Australia (2013) HCA 5, the High Court of
Australia—the Court at the apex of the judicial hierarchy in
this jurisdiction—has unanimously rejected a constitutional
challenge to the Australian domestic legislation, the
International Arbitration Act 1974 (Cth) ("IA
Act"), that gives the force of law in Australia to, inter
alia, the UNCITRAL Model Law on International Commercial
Arbitration ("UNCITRAL Model Law").
If successful, the constitutional challenge would have seriously
undermined the finality of arbitral awards sought to be enforced in
Australia. The gravity of this potential consequence was reflected
by the intervention into the proceedings of the solicitors general
for the Commonwealth, New South Wales, Victoria, Western Australia,
Queensland, and South Australia, together with representatives of
the main arbitral bodies in Australia, all of whom supported the
constitutional validity of the legislation.
The appellant, TCL Air Conditioner (Zhongshan) Co Ltd
("TCL"), sought to challenge section 16(1) of the IA Act,
which provides that "the Model Law has the force of law in
Australia." TCL's objection to the UNCITRALModel Law
centered on the enforcement provision, namely Article 35(1), which
provides:
An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36.
Article 36 of the UNCITRALModel Law sets out limited grounds for refusing recognition or enforcement. In a departure from the common law position, those grounds do not include when error of law appeared or was manifest on the face of an award. It was principally the absence of that ground as a means to contest an arbitral award on which TCL hinged its constitutional challenge in the High Court.
Background
The dispute arose under a written distribution agreement between
China-based TCL and Australian company Castel Electronics Pty Ltd
("Castel"). Under the agreement, TCL and Castel agreed to
the submission of disputes to arbitration in Australia. Following a
commercial arbitration, two awards were made requiring TCL to pay
to Castel $3,369,351 and costs of $732,500. In default of payment,
Castel applied under the IA Act to the Federal Court of Australia
to enforce the awards. In separate proceedings, TCL applied to set
aside those awards.
In further proceedings—being those the subject of this
commentary—TCL invoked the High Court's original
jurisdiction and sought to challenge the constitutional validity of
section 16(1) of the IA Act as beyond power because it infringes Ch
III of the Constitution. Among other things, Ch III of the
Constitution vests the judicial power of the Commonwealth in the
High Court of Australia, the Federal Court of Australia, and in
Courts of the States invested with federal jurisdiction. That is,
arbitral tribunals are not invested with judicial power.
TCL's Argument
TCL's arguments to the High Court were that (i) the IA Act
impairs the institutional integrity of the Federal Court;
1and (ii) the IA Act impermissibly vests the judicial
power of the Commonwealth in arbitral tribunals.2 To
elaborate, TCL submitted that the effect of the Model Law is to
co-opt or enlist the Federal Court into providing assistance during
the course of the arbitral proceeding and in enforcing resulting
awards while denying the Federal Court any scope for reviewing
substantively the matter referred to arbitration, and the ability
to act in accordance with the judicial process.3
Moreover, TCL submitted that under Art 35, no independent exercise
of judicial power by the Federal Court was required for the
enforcement of an award.4
As noted by the High Court, both arguments relied on the
proposition that to avoid contravening Ch III of the Constitution,
courts must be able to determine whether an arbitrator
applied the law correctly in reaching an award.5 The
High Court rejected this proposition.
The High Court considered that a court's institutional
integrity—in particular its independence—was not
"distorted" by the absence of scope for substantive
review of an award for error of law when a court determines the
enforceability of an award under the IA Act. That is because a
court undertaking the task of enforcing an award pursuant to the IA
Act has the power to refuse to enforce an award or, under Article
34, to set aside an award, in a multiplicity of circumstances,
including the circumstance that an "award is in conflict with
the public policy of [Australia]."6 Those
provisions are protective of the institutional integrity of courts
in the Australian judicial system that are called on to exercise
jurisdiction under the IA Act.7
The High Court considered that TCL's case misconceived the
nature of arbitration. The High Court emphasized the distinction
between the nature of an arbitrator's function and the nature
of a court's function. An arbitrator's role, function, and
powers arise from a consensual submission by the parties to the
arbitrator's determination of their rights, obligations, and
liabilities. By contrast, judicial power is a sovereign power that
is exercised independently of the consent of the person against
whom the proceedings are brought, and it results in a judgment or
order that is binding of its own force. In conclusion, the Model
Law and the IA Act do not involve a delegation of judicial power in
arbitral tribunals.
Conclusion
The High Court's decision ensures that the intentions of the
UNCITRALModel Law, and the similarly framed New York Convention,
will be carried out by the Federal Court of Australia when it is
asked to enforce an arbitral award. Put another way, the decision
ensures that enforcement of arbitral awards against persons and
assets in Australia is relatively straightforward and cannot be
held up by the losing side attempting to have another go at arguing
the legal merits of the dispute. The decision is a welcome
reaffirmation of Australia's pro-arbitration legal
environment.
Footnotes
1.At [64].
2.At [66]
3.At [64].
4.At [66].
5.At [67].
6.At [103]
7.At [103]
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