Significant developments in international arbitration in Australia in 2014

This year there have been several important cases in the international arbitration space in Australia, as well as the introduction of new arbitral and court rules, and significant developments in relation to investment treaty arbitration for Australian investors.

Decisions by Australian courts

In 2014, the Full Federal Court of Australia handed down its reasons for dismissing TCL Air Conditioner (Zhongshan) Co Ltd’s ("TCL’s") appeal¹ from the Court’s decision in Castel Electronics Pty Ltd v DCL Air Conditioner (Zhongshan) Co Ltd (No 2).² The decision clarifies the circumstances in which an arbitral award will be set aside or denied recognition or enforcement under the Model Law as a result of a failure to accord a party procedural fairness in connection with making the award. The Court held that an international commercial arbitration award will not be set aside or denied recognition or enforcement under Articles 34 and 36 of the Model Law unless there is “demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness.”³ Following the Full Federal Court’s decision in July, Castel has pursued enforcement proceedings against TCL in China, though it has not succeeded in obtaining a payment to date.⁴

In addition, several court decisions were handed down in 2014 confirming Australian courts’ commitment to upholding the finality of arbitration awards in Australia. For example, the Federal Court of Australia’s decision in Armada (Singapore) Pte Ltd (Under Judicial Management) v Gujarat NRE Coke Limited⁵ concerned the enforceability of three foreign arbitral awards in Australia. In determining that the awards were binding upon the parties, Foster J held that the applicant had satisfied the requirements of section 9 of the International Arbitration Act 1974 (Cth) ("IAA"). The decision also offered further guidance on the meaning of ‘public policy’ within the IAA since the amendment of that Act in 2010. Further information regarding this decision is available here.

In William Hare UAE LLC v Aircraft Support Industries Pty Ltd,⁶ the Court held that section 8 of the IAA should be construed so as to allow enforcement of part of an arbitral award, where severance of the award is possible. In that matter, Darke J found that there was a breach of natural justice in respect of one part of the arbitral award in question, and refused to enforce that portion of the award. However, his Honour held that the remainder of the award was enforceable in accordance with section 8(2) of the Act, and was prepared to sever the part of the award affected by a breach of the rules of natural justice accordingly.

Decisions by international courts and tribunals

Two significant decisions of international courts and tribunals involving Australian entities have also been handed down in 2014.

First, in the context of an arbitration currently on foot between East Timor and Australia concerning allegations by East Timor that Australia engaged in spying during negotiations to sign the 2006 Treaty on Certain Maritime Arrangements in the Timor Sea, the International Court of Justice ("ICJ") handed down a decision regarding provisional measures sought  in respect of documents and data seized by the Australian Security Intelligence Organisation ("ASIO") from the office of an Australian lawyer representing East Timor in the arbitration. The ICJ made orders imposing restrictions on ASIO’s use of content contained in the seized material and determining that Australia not interfere in any way in communications between East Timor and its legal advisors in relation to the pending arbitration. Further information on the ICJ’s decision can be found here.

Secondly, an ICSID Tribunal ("Tribunal") held that it did not have jurisdiction under the 1992 Australia-Indonesia Bilateral Investment Treaty ("BIT") to hear a claim for expropriation and other violations brought by the Australian subsidiary of a British coal mining company against Indonesia.⁷ The Tribunal found that Australia and Indonesia had only given a “promise to consent” to ICSID jurisdiction under the BIT, rather than full advance consent, meaning that Indonesia could still refuse consent subject to potential review through an inter-state arbitration procedure separately provided for under the treaty. While the Tribunal nonetheless found that it had jurisdiction to hear the matter based on Indonesian authorities’ consent to jurisdiction under certain coal mining licences, the decision may have significant implications for future ICSID claims, given that similar wording to that considered by the Tribunal is contained in many other treaties concluded by Australia.

Changes to arbitral rules

In September, the Australian Centre for International Commercial Arbitration ("ACICA") released an exposure draft of the ACICA Arbitration Rules 2015 for public comment. The proposed changes to the existing ACICA Arbitration Rules 2011 include, significantly, the ability for ACICA to consolidate two or more pending arbitrations in certain circumstances (rule 11A.1), and for an arbitral tribunal to allow an additional party to be joined to an arbitration, provided that, prima facie, the additional party is bound by the same arbitration agreement between the existing parties (rule 11B.1).

In addition, the Supreme Court (Chapter II Arbitration Amendment) Rules 2014 came into operation in the Supreme Court of Victoria on 1 December 2014. The Rules constitute a comprehensive guide for practitioners in the making of applications to the Court in both international commercial arbitration and domestic arbitration matters.⁸

Investment treaty arbitration

2014 has also seen Australia conclude Free Trade Agreements ("FTAs") with China, Japan and Korea, Australia’s three largest export markets.⁹ The FTAs with both China and Korea include Investor-State Dispute Settlement ("ISDS") provisions, which will provide Australian investors in China and Korea with both substantive and procedural protections against political risk. Substantively, the ISDS provisions set out standards by which China and Korea must treat Australian investors - namely fairly and equitably, with discrimination against foreign investments compared with domestic investments being prohibited. Procedurally, if a dispute arises, the ISDS provisions allow investors to bring claims directly against the relevant host government (rather than having to rely on the Australian government to take action on their behalf), and to have their dispute resolved before an independent arbitration tribunal, rather than by recourse to the local courts of the host country.

While Australia’s FTA with Japan does not include ISDS provisions, the agreement does contain a review clause providing for future consideration of an ISDS mechanism.¹⁰ Further, to the extent that the Trans Pacific Partnership ("TPP") incorporates ISDS provisions, Australian investors in Japan will likely be able to bring investment treaty claims under that agreement, despite the absence of ISDS provisions in the Japan-Australia FTA, as both Australia and Japan are participating in the TPP. Negotiations for the TPP are expected to conclude in 2015, though whether the agreement will include ISDS provisions (and the extent to which such provisions will apply to all participants) remains uncertain at this stage.

Endnotes

1. TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83.
2. [2012] FCA 1214.
3. Further details regarding this decision are available here.
4. We discuss Castel’s enforcement of its arbitral award in China in our previous article, available here.
5. [2014] FCA 636.
6. [2014] NSWSC 1403.
7. Planet Mining Pty Ltd v Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40 – Decision on Jurisdiction, 24 February 2014.
8. Further details regarding the introduction of the Rules are available here.
9. Further information on Australia’s recently concluded FTA with China can be found here.
10. Further information on Australia’s FTA with Japan can be found here.

For more information regarding possible implications for your business, please contact Leon Chung, Partner, or your usual Herbert Smith Freehills contact.