Australia: WA Supreme Court rules on jurisdiction in international arbitrations

Last Updated: 4 September 2016
Article by Tom Darbyshire

When parties to a contract include an arbitration clause in their agreement, they usually expect to be able to stay out of the courtroom and take advantage of the relative informality, flexibility and confidentiality of arbitration in the event that a dispute arises under the contract.

However if the effectiveness or applicability of an arbitration clause is disputed by one of the parties, complicated issues of jurisdiction arise which may have to be resolved by a court before an arbitral tribunal can start doing its job.

A recent decision of the WA Supreme Court gives an important indication of the role Australian courts might play in dealing with these jurisdictional issues, in the context of international arbitrations arising in Australia. The decision needs to be carefully considered by businesses which might find their dispute resolution clauses under scrutiny in Australian courts.

In Samsung C & T Corporation v Duro Felbuera Australia Pty Ltd [2016] WASC 193, the defendant (Duro) was in an unincorporated joint venture with Forge Group Constructions Pty Ltd (Forge), providing engineering and construction services to the plaintiff (Samsung) in relation to the Roy Hill Iron Ore Mining, Rail and Port Project. These services were provided to Samsung pursuant to a contract (the Subcontract) which contained a clause requiring disputes under the Subcontract to be resolved by arbitration.

When Forge went into voluntary administration in early 2014, Samsung terminated the Subcontract and entered into another agreement with Duro, the Interim Subcontract, which took effect from 21 February 2014.

The Interim Subcontract was said to be on the same terms as the Subcontract except to the extent that those terms were specifically modified. The Interim Subcontract contained a governing law clause, and a jurisdiction clause, consenting to the non-exclusive jurisdiction of the Supreme Court of Western Australia, but no separate arbitration agreement.

The dispute

Significant disputes arose between Samsung and Duro in late 2015. On 17 March 2016 Samsung issued a notice of arbitration against Duro pursuant to the Subcontract, and requested that the Singapore International Arbitration Centre (SIAC) administer the arbitration between Samsung and Duro.

On the following day Duro issued its response to the notice of arbitration which included various claims against Samsung under the Interim Contract (referred to in the judgment as the Duro Claims).

Samsung asserted that because the Duro Claims arose under the Interim Contract, which contained no arbitration clause, they could not be dealt with in the SIAC arbitration and had to be resolved in the WA Supreme Court, in accordance with the governing law and jurisdiction clauses in the Interim Contract.

Duro sought a stay of the Supreme Court proceedings pursuant to section 7 of the International Arbitration Act, which is an application of the UNCITRAL Model Law on International Commercial Arbitration, and which requires a court to stay court proceedings if they involve a matter capable of being settled by arbitration.

The decision

The Court found that the Interim Subcontract did in fact incorporate the arbitration clause in the Subcontract. The Duro Claims were therefore capable of being resolved by arbitration, and Samsung's application to have the Duro Claims dealt with in the Supreme Court was stayed.

On its face this looks like a win for the institution of arbitration in Australia, but the decision requires closer scrutiny.

The court had to consider the extent to which the arbitral tribunal in Singapore could determine its own jurisdiction. This is a matter of considerable importance in international arbitration and is known as the kompetenz-kompetenz principle.

The court in this case considered the two competing approaches to be adopted when an issue of jurisdiction arises from a challenge to the validity or applicability of an arbitration agreement.

The "prima facie review" approach has recently been adopted by the Singapore Court of Appeal, and requires a court to satisfy itself on a prima facie basis that the subject matter of the arbitration or proposed arbitration may fall within the scope of an apparently valid arbitration agreement. If this low standard is met, a court will stay the court proceedings and allow the arbitral tribunal to resolve any challenge to the validity of the arbitration agreement.

The second approach, the "full review" approach, requires a court to itself determine on the balance of probabilities the validity and scope of a contested arbitration agreement, an approach that is favoured in English courts and has recently been considered in New South Wales.

The Supreme Court of WA emphatically adopted the latter "full review" approach. Not only did it determine that the Interim Contract contained an arbitration clause, it declined to hear evidence about the Arbitral Tribunal's ruling as to its own ability to deal with the Duro Claims on the basis that the Court had decided that issue in favour of arbitration in any event.

The "prima facie" approach would have left this issue to the Arbitral Tribunal in Singapore to determine unless it was completely clear that there was no valid arbitration agreement.

Comment

On one view of things, the approach taken in this case led to an efficient outcome, in that the jurisdiction of the Arbitral Tribunal was determined in a single application. Had the court adopted the prima facie approach and allowed the Arbitral Tribunal to have the first go at determining the validity and scope of the arbitration agreement, that decision itself might have been reviewed by a court.

However the important point about this decision is not just that a stay of court proceedings was granted in favour of the ongoing arbitration. It is also very significant that the Supreme Court decided that it was the proper forum for making this decision, rather than the Arbitral Tribunal itself.

The "full review" approach arguably provides greater clarity and efficiency in resolving preliminary issues about the validity of an arbitration agreement, but it can be also be viewed as a significant intrusion into the independence of an arbitrating body. Article 16 of the Model Law contemplates that an Arbitral Tribunal will be able to determine its own jurisdiction, which is not what occurred in this case.

Whatever the relative merits of the "prima facie" and "full review" approach, the reasoning in this decision is markedly different to that adopted in other regional jurisdictions, perhaps most significantly Singapore. Whether the case is perceived as streamlining, or interfering with, the arbitration process by parties seeking to resolve disputes, remains to be seen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kott Gunning is a proud member of

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.