Federal Court of Australia preserves the efficiency and integrity of the arbitration process

A recent decision by the Federal Court of Australia has highlighted the diligence of Courts to ensure non-interference with the arbitral process. The Court in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [2015] FCA 1028 refused to make any of the orders requested by the applicant, namely that the Court should decide on an arbitrator challenge where the appointing authority had not made its final decision and the requests to issue subpoenas for the production of documents where the course of action was not endorsed by the Tribunal.

The approach in this case is a welcome sign that the Australian Federal Court is supportive of international commercial arbitration, and that this support extends to exercising its powers only in a careful and appropriate way.  This decision provides further confirmation that, for parties in the Asia-Pac region, Australian seats remain a viable option for their arbitration agreements.

Background

The underlying arbitration proceedings involved a contractual dispute between the Applicant, Sino Dragon, and First Respondent, Noble Resources, with respect to the sale and shipping of iron ore to China. Following the alleged breach by Sino Dragon, Noble Resources terminated the contract and served a notice of arbitration on Sino Dragon for an estimated value of AUS$1.9 million and appointed an arbitrator. Sino Dragon failed to appoint an arbitrator. In accordance with the UNCITRAL Arbitration Rules (which contractually applied), an appointment was subsequently made by an appointing authority designated by the Permanent Court of Arbitration. The two arbitrators thus nominated a Chairperson.

The appointments of the Chairperson and the arbitrator which was appointed by the appointing authority were unsuccessfully challenged by Sino Dragon several times on various grounds and these challenges were rejected by the appointing authority. Before the last challenge had been determined by the appointing authority, an application was brought to the Federal Court of Australia (the Court).

The Court’s power to consider a challenge to the arbitrators

The key issue was whether the Court could determine Sino Dragon’s challenge to the arbitrators before the issue had been decided by the appointing authority. Ultimately, the Court rejected all arguments  in support of the Court’s power to consider the challenge before the appointing authority had reached a determination on the same.

The first of these arguments was based upon Article 13(3) of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) which is given effect in Australia through the International Arbitration Act 1974. In his rejection of this ground, the Court upheld the process for challenge to the Court under Article 13(3), namely that the Court should not intervene where an agreed procedure for challenge is still in process. The Court held that it had no power, or it would be inappropriate for it to exercise power, to make the orders sought until the process had concluded. Any decision by the Court would usurp the processes contained within the International Arbitration Act and Model Law.

The Court also strongly rejected the second argument which was based on an alleged implied power at common law for a court to decide a challenge to an arbitrator. The Court stated that the exercise of such a power in this context would contradict the purpose of arbitration and undermine the careful process set out in the Model Law. The view taken by the Court recognised the important purpose and advantages of arbitration in ensuring expediency and efficiency. The Court rejected the argument on the basis that it expressly contravenes Article 5 of the Model Law which provides that “no court shall intervene except where so provided in this Law”.

The Court’s power to issue subpoenas

Sino Dragon sought from the Court also an order for the production of 12 of 22 documents of which it applied to the Tribunal for production but which requests were either (i) refused on the grounds that the documents were irrelevant; (ii) refused on the ground that the documents had already been produced; (or (iii) allowed but with redactions.

The Court noted that “in effect, Sino Dragon seeks to have this court revisit a procedural decision by the Tribunal” (para 93).

It considered the relevant sections of the Model Law conferring the relevant powers onto the court and, ultimately, refused to make such orders where the request was made without the approval of the Tribunal (para 109).

Outlook

This case demonstrates the Court’s acceptance of the limitations and scope of its own power and an understanding that inappropriate intervention would cause unnecessary delay and therefore undermine the arbitral process. This decision sends a strong signal to parties who contract to or engage in arbitration that the careful regime which has been established for arbitration will be adhered to by the Courts in Australia.

For further information, please contact Donald Robertson, Partner, Anne Hoffman, Senior Associate or your usual Herbert Smith Freehills contact.