UK: Federal Court issues injunction against London arbitrator – no inherent jurisdiction in Australian courts to uphold arbitration agreements

Last Updated: 28 May 2008
Article by Michael Mitchell

BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd [2008] FCA 551

In Brief

A shipbroker sued in the Federal Court of Australia sought to rely on a London arbitration clause in the charterparty. The Federal Court of Australia held that:

(a) Australian courts have no inherent jurisdiction to enforce private arbitration agreements; and,

(b) On the facts, the Australian statute which applies the New York Convention did not apply so as to require the dispute to be referred to arbitration.

The Federal Court of Australia affirmed its jurisdiction to issue an injunction against an arbitrator in London to prevent him hearing the arbitration, and to enforce such injunction by contempt proceedings if need be.

Facts

The Plaintiff ("BHPB") took a sub-charter of a vessel in May 2003. It retained shipbrokers to offer the vessel for charter. BHPB agreed to charter the vessel to NCI upon the terms of an unsigned charterparty which named BHPB as time charterer and NCI as charterer.

However (it was alleged), without BHPB's knowledge the vessel was delivered to Nera Shipping Co Ltd, a shell company with little registered capital. The vessel sailed from China to Thailand and was redelivered to BHPB on 27 November 2004, but the hire and other charges due to BHPB under the charterparty were never paid. BHPB obtained an arbitration award in London against Nera Shipping of US$1,063,716.19, which was never satisfied.

On 11 August 2006, BHPB commenced proceedings against one of the shipbrokers ("Cosco") in the Federal Court of Australia, alleging negligent misstatement, breach of warranty of authority, and misleading and deceptive conduct pursuant to the Trade Practice Act 1974 (Cth)1.

Cosco defended BHPB's proceedings in the Federal Court of Australia. However, on 24 April 2007, Cosco's London solicitors advised BHPB that they had appointed a London Arbitrator to hear all matters connected with the charterparty.

Clause 42 of BHPB's charterparty provided, relevantly:

(b) Any dispute arising out of this Charter Party or any Bill of Lading issued hereunder shall be referred to arbitration in accordance with the Arbitration Acts 1996 and any statutory modification or re-enactment in force. English law shall apply ...

(c) The arbitrators, umpire and mediator shall be commercial persons engaged in the shipping industry. Any claim must be made in writing and the claimant's arbitrator nominated within 12 months of the final discharge of the cargo under this Charter Party, failing which any such claim shall be deemed to be waived and absolutely barred.

It was clearly open to Cosco to argue in the London arbitration that BHPB's claim was time-barred by clause 42(c).

Ex parte injunctions

On 26 April 2007, BHPB obtained ex parte injunctions from the Federal Court - an "anti-anti-suit" injunction, and an anti-arbitration injunction. The latter was served on the London Arbitrator by facsimile on 4 May 2007. The Arbitrator replied to the effect that arbitration in London is subject to the Arbitration Act 1996 (UK) and not the orders of a foreign court.

Finkelstein J in the Federal Court would later comment: "No doubt [the Arbitrator] takes the view that being outside Australia he is not amenable to the jurisdiction of the Federal Court. He might have to reconsider this view. It is settled law that a person not party to a proceeding may nevertheless be guilty of contempt if that person deliberately undermines a court order: Attorney-General v Times Newspapers Ltd [1992] 1 AC 191" and "If [the Arbitrator] in fact took any step to further the arbitration after he became aware of the injunction, he may be in for a rude shock were he to find himself subject to the personal jurisdiction of the Federal Court"2.

Cosco seeks to overturn the injunctions before Finkelstein J

It was not disputed that clause 42 was an "arbitration agreement" for the purposes of section 7 of the International Arbitration Act 1974 (Cth) ("the Act"), which implements the New York Convention3 ("the Convention").

The section 7(4) argument claiming "through or under" a party

Cosco was not "one of the parties" to the arbitration agreement, as required by Article II of the Convention. It therefore sought to rely on section 7(4) of the Act, which deems a person "claiming through or under a party" to be a party to the arbitration. Australian cases4 required that Cosco show that there was a "relationship of sufficient proximity" between it and the party through or under whom it claimed, and that Cosco's claim or defence was "derived" from that party. Finkelstein J held that Cosco could not demonstrate such a relationship with NCI (it had specifically disclaimed that it had acted as shipbroker to NCI), nor could it show that it "derived" the time bar from NCI, and therefore section 7(4) of the Act did not apply.

The UK Third Parties Act argument

Cosco sought to rely on the Contracts (Rights of Third Parties) Act 1999 (UK) ("the Third Parties Act"). However, Finkelstein J held that, even if it were permissible to have regard to foreign law in construing the Australian International Arbitration Act, the Third Parties Act did not on its terms apply to Cosco's situation the charterparty did not expressly provide that Cosco was entitled to enforce the arbitration clause, nor did it purport to confer a benefit arising from the arbitration clause on Cosco.

The inherent jurisdiction argument

Cosco argued that it was oppressive or vexatious for BHPB to press its claim in the Federal Court of Australia in defiance of the arbitration clause, especially when Cosco would thereby be prevented from relying on the time bar in clause 42. Cosco therefore sought to rely upon the inherent jurisdiction of the Court to enforce the private arbitration clause.

Finkelstein J noted that, in England, it has been the settled position since 1943 that the court has an inherent power to stay an action brought in breach of a private arbitration clause in a contract5; more recent authority confirms the English Courts' inherent power to enforce an arbitration clause and a foreign jurisdiction clause6. He further noted that there was a divergence of authority in Australia, with many cases following this English line of authority7.

Nevertheless, His Honour held that he was bound by clear authority of the High Court of Australia dating from 1941: In Anderson v G H Michell & Sons Ltd8. the High Court held:

"Apart from the statutory power of staying an action, the most express agreement to refer to arbitration and not to litigate could not prevent recourse to the courts or exclude their jurisdiction;..."

A few years later, the High Court confirmed that: "At common law no contract could oust or lessen the jurisdiction of the courts of the Crown"9. Therefore, Finkelstein J held that in Australia courts have no inherent power to grant the relief sought by Cosco.10

Implications

  • There is a clear divergence between the laws of England and Australia with respect to the inherent jurisdiction of the courts to enforce private arbitration clauses.
  • Semble, Finkelstein J's judgment would also apply to foreign jurisdiction clauses in private contracts.
  • With respect, Finkelstein J is clearly correct in his reliance on binding authority of the High Court of Australia; therefore the correctness of a number of Australian decisions which diverge from that authority must be called into question.11
  • Parties seeking to enforce London (or other foreign) arbitration clauses in Australia must bring themselves within the scope of the New York Convention, although noting that the relevant Australian Act gives a somewhat expanded scope to the definition of "party".

Footnotes

1. Later another shipbroker was added as a co-defendant.
2. See judgment, paragraph 6
3. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Australia is a ratifying party to the Convention.
4. E.g. Tanning Research Laboratories Inc v O'Brien [1990] 169 CLR 332; Mangion v James Hardie & Co Pty Ltd [1990] 20 NSWLR 100
5. Racecourse Betting Control Board v Secretary for Air [1944] 1 ChD 114
6. Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyd's Rep 522, 524-525; A v B [2007] 1 Lloyd's Rep 237, 253-254
7. E.g. Aerospatiale Holdings Australia Pty Ltd v Elspan International Ltd [1992] 28 NSWLR 321, 324; Savcor Pty Ltd v State of New South Wales [2001] 52 NSWLR 587, 598; HIH Casualty & General Insurance Ltd (in liq) v Wallace [2006] 204 FLR 297, 341.
8. [1941] 65 CLR 543 at 549 per Rich ACJ, Dixon and McTiernan JJ
9. Compagnie des Messageries [1954] 94 CLR 577at 582 per Dixon CJ (with whom McTiernan and Kitto JJ agreed)
10. This authority can only be overruled by a full bench of the High Court of Australia normally seven judges
11. These are cited by His Honour at paragraph 43 of the judgment

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.

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