New South Wales Supreme Court orders partial enforcement of foreign arbitral award where breach of natural justice found in relation to one claim

In William Hare UAE LLC v Aircraft Support Industries Pty Ltd [2014] NSWSC 1403, the plaintiff, a company incorporated in Abu Dhabi, sought enforcement of a foreign arbitral award under the International Arbitration Act 1974 (Cth).  The enforcement was challenged by the defendant on grounds that a breach of public policy occurred in connection with the making of the award.  The defendant claimed principally, that the tribunal’s finding that the plaintiff was entitled to payment of US$50,000 when a claim for that sum was not made and the tribunal’s alleged failure to consider contentions of the defendant with respect to a variation of the relevant agreement constituted a breach of natural justice.  The defendant also based its challenge on the refusal of the tribunal to allow the defendant to rely on supplementary grounds of defence and the tribunal’s failure to give reasons for a number of its findings.

The arbitration hearing had been held in the UAE in December 2013 after several adjournments (at the request of the defendant).  At the hearing, the defendant made application to rely on certain supplementary defences, including a defence that the tribunal was not competent.  The application was heard de bene esse and the substantive hearing followed.

The award was issued on 1 May 2014.

The Court looked in some detail at the chronology of the arbitration proceedings from the delivery of the request for arbitration to the hearing itself.  It also considered the pleadings and the terms of reference and arbitration agreement signed by the parties and the tribunal. 

His Honour cited the recent decision of the Full Court of the Federal Court of Australia in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83 where the Full Court stated (at [111]) that [n]o international arbitration award should be set aside for being contrary to Australian public policy unless fundamental norms of justice and fairness are breached and real unfairness and real practical injustice has been shown to have been suffered by an international commercial party in the conduct and disposition of a dispute in an award. 

His Honour then addressed each of the grounds relied upon by the defendant in challenging enforcement of the award.

In relation to the tribunal’s finding that the defendant must pay the plaintiff the sum of US$50,000, his Honour found that the award adequately (although briefly) set out the reasons for the finding in the award, but that on the relevant facts there was a breach of natural justice in relation to the making of the order for the payment of US$50,000 (the claim having been identified in certain documents in the arbitration, but not specifically identified in the statement of claim, strongly suggest[ing] that the plaintiff had in fact abandoned it).  His Honour stated that in circumstances where it was reasonable to have treated the claim as no longer pressed, the tribunal should have given notice to the parties of its view to the contrary and provided the parties with an opportunity to make submissions in relation to it. 

In relation to the defendant’s contention that the tribunal had failed to consider the status of the relevant agreement and the variation thereto, his Honour found that there had been no breach of natural justice.  His Honour reached the same conclusion in relation to the defendant’s application to rely on supplementary defences, finding (at [93]) that:

The tribunal gave the defendant ample opportunity to make the applications at the hearing, supported by extensive written and oral submissions.  The tribunal chose to deal with the application de bene esse and allow the hearing to proceed, and no objection was taken by the defendant to that course.  It is clear that the tribunal received further written submissions on the application as part of the Closing Submissions of each party.

In relation to the further complaints that the tribunal failed to give reasons in its award, his Honour expressed the view that the reasons were not relevantly inadequate nor did they reveal any failure on the part of the tribunal to consider any part of the defendant’s case.

As a consequence of the findings set out above, the question for the Court was whether the award ought be enforced in part or whether the breach in relation to the US$50,000 claim precluded enforcement in toto under the International Arbitration Act 1974 (Cth).

His Honour examined a number of decisions both within Australia and from other jurisdictions concerning the issue of partial enforcement of an arbitral award and observed that [t]he principles of severance have been applied to arbitral awards for centuries and have been applied in the context of international commercial arbitration.  Those principles are themselves firmly based upon notions of justice.

Enforcement in this case was sought pursuant to s 8 of the International Arbitration Act 1974 (Cth).  His Honour expressed the view that: 

[129] In my opinion, s 8 of the Act should be construed so as to allow enforcement (pursuant to s 8(2) or s 8(3)) of a part of an award, and allow refusal of enforcement (pursuant to s8(7)) of part of an award, where severance of the award is possible.  That is to say, “the award” as it appears in those sub-sections should be construed as including part of the relevant award. 

[130] It seems to me that this construction is not only available as a matter of language, it is consistent with the objects of the Act, and promotes rather than hinders the efficient and fair enforcement of international arbitral awards.  Further, it accords with the approach taken internationally in relation to similar legislation.

Noting that the alternative construction (that a breach of natural justice which impacted one aspect of the awarded precluded enforcement of any parts of the award) would be regarded by his Honour as an anomalous (if not absurd) result, and one very much opposed to the efficient and fair enforcement of international arbitral awards.

His Honour found in this case, that severance of the part of the award that concerned the US$50,000 claim was possible without causing any injustice to the defendant and ordered enforcement of the balance of the award.

This case is the latest in a series of authorities handed down by the Australian courts demonstrating strong support for the arbitration process.  In fact, in an analysis of s 8 of the International Arbitration Act 1974 (Cth) in this case, his Honour made the observation that there was nothing to suggest that the enactment of s 8(7) was intended, amongst other things, to introduce any idiosyncratic Australian approach to the enforcement of awards affected by fraud or corruption, or breaches of natural justice.  This observation, combined with the extent to which his Honour considered and drew support from the international authorities, should provide Australian and overseas businesses with confidence that Australia is well placed as a regional arbitration centre.

For further information, please contact Bronwyn Lincoln, Partner, or your usual Herbert Smith Freehills contact.