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5 January, 2017
In recent years, Australian courts have given increased attention to the various issues associated with the enforcement of foreign arbitral awards in this jurisdiction. In 2016, these issues included the enforcement of awards contrary to public policy, and the entitlement to indemnity costs following an unsuccessful challenge to the enforcement of an award. This article will look briefly at what the courts said about these two issues, and what it means for the enforcement of foreign arbitral awards in Australia in the future.
Enforcement contrary to public policy
An Australian court may refuse to enforce a foreign arbitral award if its enforcement would be contrary to public policy. This ground of refusal was considered by the Court of Appeal of the Supreme Court of Victoria in Gutnick v Indian Farmers Fertiliser Cooperative Ltd [2016] VSCA 5 ("Gutnick"). In Gutnick, the respondents had successfully applied to enforce an arbitral award in Australia which was handed down in Singapore. The award declared agreements involving the sale of shares from the applicants to the respondents to be rescinded (that is, revoked or cancelled), and ordered the applicants to return the purchase price of the shares to the respondents. The applicants appealed that decision and contended that the award should not be enforced because the award permitted "double recovery" (i.e. it allowed the respondents to get their money back and keep their shares), and was therefore contrary to public policy.
The Court of Appeal held that an award which permitted "double recovery" would be contrary to public policy. However, the Court considered that there was no risk of double recovery in this particular case. The Court held that the effect of the rescission, confirmed in the arbitral award, was to vest equitable rights to the shares in the applicants. Although the arbitral award did not expressly provide for the respondents to transfer back their purchased shares, it was implicit that both parties would return the benefits they had obtained under the agreements. As there was no risk of double recovery, the award was not contrary to public policy and the applicants' challenge to its enforcement failed.
In arriving at its conclusion, the Court of Appeal acknowledged the importance of adopting a policy of minimal curial intervention in arbitration matters. This is consistent with recent developments in Australian case law in this area. In the context of enforcement of foreign arbitral awards, this means that the court's role is understood to be limited to the enforcement of contractual obligations – that is, holding the parties to their bargain to finally determine disputes using arbitration. The court's role does not involve determining substantive disputes between the parties as to fact or law, or otherwise reviewing the decision of an arbitral tribunal.
Costs of unsuccessful challenges to enforcement
In Hong Kong, if a party unsuccessfully challenges the enforcement of a foreign arbitral award, the other side is, absent special circumstances, entitled to their costs of responding to the challenge on an indemnity basis. Should the courts in Australia adopt this approach?
This was the question considered in two separate decisions of the Federal Court of Australia in 2016. The first decision, Ye v Zeng (No 4) [2016] FCA 386, was handed down by Allsop CJ in July. His Honour ultimately considered that it was both unnecessary and inappropriate to decide this question, but noted that there were "powerful considerations" in support of the adoption of the Hong Kong approach in Australia.
A different approach was taken by Beach J in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2) [2016] FCA 1169, which was handed down in September. With respect, his Honour provided compelling reasons for the Hong Kong approach not to be adopted in Australia. Central to his Honour's approach was an intention evinced by the relevant legislation that it would be the law of the forum where the challenge to enforcement was being pursued that would determine the principles to be applied to any indemnity costs question, rather than an approach taken from another jurisdiction. Following the decision of Sino, it is doubtful that the Hong Kong approach applies in Australia for the time being.
When will a party be entitled to its costs of responding to an unsuccessful challenge on an indemnity basis? In Sino, his Honour considered that an order for indemnity costs would be justified where an unsuccessful challenge is made which has been found not to have reasonable prospects of success, whether or not the unsuccessful party knew or ought to have known this at the outset.
A party wishing to launch a challenge to the enforcement of an arbitral award in Australia should take positive steps to ensure that at inception it does have reasonable prospects of success, taking into account both the law and the evidentiary foundation available to it. Failure to do so will increase that party's exposure to an indemnity costs order being made against it, in the event that its challenge is not successful.
For further information, please contact:
Matthew Mulcahy, Bird & Bird
matthew.mulcahy@twobirds.com
