18 October, 2015
On paper, Australia is an attractive seat for international arbitration, satisfying many of the "London Principles" devised by the Chartered Institute of Arbitrators.1 But in practice, the number of international arbitrations seated in Australia has been relatively low, particularly when compared to rival seats in the Asia-Pacific region such as Singapore and Hong Kong.
However, key aspects of Australia's International Arbitration Act 1974 ("IAA") have recently changed under the Civil Law and Justice Legislation Amendment Act 2015 and the Civil Law and Justice (Omnibus Amendments) Act 2015. Together, these changes may serve to increase Australia's popularity as a seat for international arbitration.
Civil Law and Justice Legislation Amendment Act 2015 (Cth)
It was generally accepted that the original wording of Section 21 of the IAA permitted parties to exclude or opt out of the UNCITRAL Model Law.2 That ability was removed in July 2010 when Section 21 was amended to give the Model Law exclusive application to international arbitrations with an Australian seat.3 But, in an apparent oversight, it was not made clear whether the amendment had retrospective effect such that it would apply to arbitration agreements entered into before the amendment on 6 July 2010.
This uncertainty, known as the "Black Hole Problem", has now been resolved by the Civil Law and Justice Legislation Amendment Act 2015, which came into effect on 18 August 2015. Schedule 2 of this Act makes clear that Section 21 does have retrospective effect, and will apply to arbitrations commenced on or after 18 August 2015, whether the arbitration agreement was made before, on or after 6 July 2010.
Civil Law and Justice (Omnibus Amendments) Bill 2015 (Cth)
On 15 September 2015 the Australian Parliament passed the Civil Law and Justice (Omnibus Amendments) Bill 2015 (the "Bill"). The Bill makes five amendments to the IAA:
(i) Enables enforcement of an award from non-New York Convention countries;
(ii) Allows award debtors to argue incapacity of a party to an arbitration agreement to resist enforcement;
(iii) Reversesconfidentialityregimetoanopt-outsystem;
(iv) Applies the Model Law to arbitration agreements made before 1989; and
(v) Changes the heading of Part II to "Enforcement of Foreign Arbitration Agreements and Awards".
The Explanatory Memorandum to the Bill describes the amendments as seeking to "make arbitration in Australia fairer and more efficient, promoting the right to have civil rights and obligations determined fairly and independently".
(i) Enforcement of non-New York Convention awards
The Bill repeals section 8(4) of the IAA, which provides that an arbitral award made in a country that is not a party to the New York Convention4 cannot be enforced unless the person seeking to enforce the award is at that time, domiciled or ordinarily resident in Australia or in a country that is party to the New York Convention.
This amendment will allow foreign awards to be enforced in Australia irrespective of the seat of the arbitration. Further, this amendment would apply to the enforcement of foreign awards on or after the date of the amendment, irrespective of when the award was made.
(ii) Resisting enforcement of foreign awards because of incapacity
The Bill also amends section 8(5) of the IAA, which provides that the enforcement of a foreign award may be resisted if the award debtor was, under the law applicable to him or her, under some incapacity at the time when the arbitration agreement was made.
This amendment will allow the enforcement of foreign arbitration awards to be resisted on the basis that any party to the arbitration agreement was under some incapacity, under the law applicable to them, at the time the arbitration agreement was made. This amendment will bring section 8(5) closer to Article V(1)(a) of the New York Convention and Article 34(2) of the Model Law, neither of which is limited to the incapacity of the award debtor.
(iii) "Opt-out" confidentiality
Currently, the confidentiality provisions under the IAA operate on an "opt-in" basis. The Bill reverses this to an "opt-out" system, such that the confidentiality provisions under sections 23C to 23G of the IAA will apply unless expressly excluded by the parties.
This is likely to be a generally welcome development. As the Explanatory Memorandum to the Bill notes, the privacy and confidentiality of arbitral proceedings is often cited as one of the main advantages of arbitration compared to litigation.
(iv) Applicability of Part III of the IAA
The Bill also repeals section 30 of the IAA, which was introduced by amendment in 1989 and concerns the application of Part III of the IAA. As with section 21 of the IAA, the ambit of section 30 was unclear following the 2010 amendments. Repealing section 30 will remove this uncertainty and cause all arbitration agreements entered into before 1989 to be governed by Part III of the IAA in its current form.
(v) Enforcement of Foreign Arbitration Agreements and Awards"
Finally, the heading of Part II of the IAA has changed from "Enforcement of Foreign Awards" to "Enforcement of Foreign Arbitration Agreements and Awards". This change is said to better reflect its content as giving effect to the New York Convention.
Conclusion
The above amendments are relevant to Japanese companies with project and business interests in Australia, especially where any dispute resolution clauses provide for arbitration with a seat in Australia. Broadly speaking, the changes are welcome amendments bringing Australia into line with international best practice, especially the UNCITRAL Model Law. These changes may well serve to make Australia a more attractive seat for international arbitration, particularly in cases where parties wish to preserve confidentiality.
1 See 'Choosing the right "seat" for your arbitration',
2 See Richard Garnett and Luke Nottage, 'The 2010 Amendments to the International Arbitration Act: A New Dawn for Australia?' (2011) 7(1) Asian International Arbitration Journal 29, 46.
3 The International Arbitration Amendment Act 2010.
4 The Convention on the Recognition and Enforceability of Foreign Arbitral Awards 1958.
For further information, please contact:
Peter Godwin, Partner, Herbert Smith Freehills
peter.godwin@hsf.com
