Australia: International Commercial Arbitration 101

This article was originally published in the December 2017 edition of Proctor.

Russell Thirgood and Erika Williams share the basics of international commercial arbitration, from start to finish.

With the increasing internationalisation of business, more clients are engaging in cross-border commercial activities.

If your clients are involved in transactions with any foreign element, they need to be aware of the alternative dispute resolution mechanisms available so that they can avoid the prospect of litigation in foreign courts. Should a final and binding determination to a dispute be required, the general global consensus is that arbitration is the most effective process due to the enforceability of arbitral awards. Transactional lawyers need to understand this, and ensure that the contracts they are drafting contain arbitration clauses. To fail to do so could mean that clients are left with no effective process to enforce their substantive rights.

What is international commercial arbitration?

Arbitration is a process by which parties agree to have their disputes determined by a neutral third party, namely an arbitrator or arbitral tribunal, in the form of a final and binding award.

An arbitration is commercial when it arises out of a relationship of a commercial nature.1 The Model Law notes that the term 'commercial' should be given a wide interpretation.

An arbitration is international if the parties to an arbitration agreement have their places of business in different countries or if the place of arbitration or a substantial part of the obligations of the commercial relationship is in a country outside that of the place of business of the parties.2

The legislative framework supporting international arbitration in Australia is the International Arbitration Act 1974 (Cth) (IAA) which is based on the UNCITRAL Model Law.

Why choose arbitration?

There are a number of features which make international arbitration appealing but, by far, one of the most important features is the enforceability of the arbitration award. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) provides common legislative standards for the recognition and enforcement of arbitration agreements and awards. At the time of writing, 157 countries are party to the New York Convention, meaning that if your client obtains an arbitration award in a 'convention country', that award should be capable of enforcement in the courts of the 157 convention countries. This is in stark contrast to the 36 countries with which Australia has reciprocal recognition of court judgments.

Another key feature of arbitration is confidentiality. Because arbitration is a private dispute resolution mechanism, it is generally accepted that it is confidential. This means that if your client finds themselves in a contested legal battle, they do not need to have dirty laundry aired in court where media or anybody can observe the proceedings.

Another feature is the ability to avoid litigation in a foreign jurisdiction. By choosing arbitration, parties can agree to have their disputes determined under the supervision of the law of a neutral third country and avoid encounters with unfamiliar legal systems.

How to choose arbitration

Parties can refer disputes to arbitration by including a simple arbitration clause in their agreement. Another option is for parties to agree to refer existing disputes to arbitration. Some of the basic elements to set out in the arbitration clause can include:

  1. selection of arbitration rules for the conduct of the arbitration
  2. selection of an arbitration institute to administer the arbitral process
  3. number of arbitrators – typically one or three
  4. language of the arbitration
  5. seat of the arbitration – the seat of the arbitration is the jurisdiction which oversees the process of the arbitration.

In addition to the basic elements set out above, the parties to a contract can be creative and tailor an arbitration process that is efficient and cost effective. For instance, they may decide to place limits on disclosure, hearing time and even recoverability of legal costs. Generally, the more thought that is given to the arbitration clause at the beginning, the better and more appropriate the dispute resolution process will be should it be needed.In addition to the basic elements set out above, the parties to a contract can be creative and tailor an arbitration process that is efficient and cost effective. For instance, they may decide to place limits on disclosure, hearing time and even recoverability of legal costs. Generally, the more thought that is given to the arbitration clause at the beginning, the better and more appropriate the dispute resolution process will be should it be needed.

How to enforce an arbitration agreement

If your client has an arbitration agreement and another party attempts to commence court proceedings, it should be relatively straightforward to apply for a stay of that action and have the matter referred to arbitration. Australian courts are known for holding parties to their bargain and will take a 'broad, liberal and flexible approach' to interpreting language used in a dispute resolution clause.3

How to enforce an arbitral award

The process of enforcing an award in Australia should also be straightforward, with enforcement being the default position subject to certain limited exceptions. The court may only refuse to enforce an award if a party proves to the satisfaction of the court that:4

  1. a party was under some incapacity at the time the arbitration agreement was made;
  2. the arbitration agreement is not valid under the law of the agreement;
  3. a party was not given proper notice of the arbitration proceedings or was otherwise unable to present its case;
  4. the award deals with a subject matter beyond the scope of the arbitration agreement;
  5. the composition of the arbitral tribunal was not in accordance with arbitration agreement;
  6. the award is not yet binding on the parties or has been set aside in the law of the country in which it was made;
  7. the subject matter is not capable of settlement by arbitration; or
  8. to enforce the award would be contrary to public policy.

The IAA further clarifies what would be contrary to public policy by stating that the enforcement of a foreign award would be contrary to public policy if the making of the award was affected by fraud or corruption, or a breach of the rules of natural justice occurred in connection with the making of the award.

When it comes to enforcement, there are a number of strategic matters that a client needs to consider with its legal advisors. Obviously the enforcement process must take place in a jurisdiction where the award debtor has sufficient assets to meet the award. In addition to this, the client should consider bringing freezing orders to ensure that assets are not relocated and it is often best that such applications be brought in appropriate courts and on an ex parte basis. Arbitration legislation based on the UNCITRAL Model Law will generally provide for these interim measures.

What now?

The dispute resolution provisions of contracts involving a foreign element need to be carefully considered. All too often, such clauses are given inadequate attention during the negotiation of contracts, and boilerplate jurisdiction clauses are inserted, which will destine any dispute to litigation in the nominated jurisdiction. Parties to such contracts would be better served by nominating international arbitration as their dispute resolution mechanism.

The choice of forum and process is in your client's hands when arbitration is selected as opposed to such matters being potentially dictated by a foreign court.

Footnotes

1 Footnote to Article 1(1) of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006 (Model Law).

2 Article 1(3) of the Model Law.

3 Fitzpatrick v Emerald Grain Pty Ltd [2017] WASC 206.

4 IAA s 8.

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.

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
Similar Articles
Relevancy Powered by MondaqAI
McCullough Robertson
 
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”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
McCullough Robertson
Related Articles
 
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
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions