Party over: Victorian court refuses enforcement against non-party to arbitration

26 August 2011 Author: Rob Buchanan

Contacts

Introduction

In an important decision on the enforcement of foreign arbitral awards, the Victorian Court of Appeal has allowed an appeal by IMC Aviation Solutions Pty Ltd (formerly IMC Mining Solutions Pty Ltd) (IMC), and in so doing refused the enforcement of an arbitral award made against IMC on the ground that IMC was not a party to the arbitration agreement.  

The Court of Appeal’s decision highlights:

  • That Australian courts have power to revisit jurisdictional issues in full in enforcement proceedings.
  • The importance of dealing with jurisdictional issues in arbitration before significant costs are incurred by running an arbitration that renders an unenforceable award.
  • That a party seeking enforcement of an award has to show a prima facie case that the award creditor and debtor were parties to the arbitration agreement.
  • That, in some circumstances, it may be appropriate to insert a clause expressly providing for the governing law of the arbitration agreement.  

The Court of Appeal decision

In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248, the Court of Appeal allowed an appeal from the judgment of Croft J.  Earlier in the year, we reported on Croft J’s decision and its implications (see here).  

In essence, the case concerned whether IMC was a party to the arbitration agreement (it was not named as a party to the contract) or had otherwise consented to becoming a party to the arbitration.  On the evidence, Croft J found it was a party, but Hansen JA and Kyrou AJA (Warren CJ declined to decide) found otherwise.  Accordingly, the arbitral tribunal had no jurisdiction to make an award against IMC.  

^Back to top

Revisiting jurisdiction and application of Dallah in Australia

Earlier in the year (see here) we reported on how Croft J departed from the approach in the United Kingdom in Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan (Dallah) [2010] UKSC 46.1

In Dallah, the UK Supreme Court held that a court in a proceeding for the enforcement of a foreign award could reopen in full the question of whether the arbitral tribunal had jurisdiction.  Although coming to a different conclusion on the facts, the French courts adopted the same approach.2 Croft J, however, appeared to give greater deference to the findings of the arbitral tribunal and the courts of the seat of arbitration and was not prepared to reopen the matter in full.  

The Court of Appeal rejected Croft J’s approach and adopted the reasons in Dallah.  Both the judgments of Warren CJ and Hansen JA and Kyrou AJA found that an enforcement court can revisit jurisdiction in full even when the arbitral tribunal or the courts of the seat of arbitration had already determined the issue.  

^Back to top

Who bears the onus of showing whether someone is a party to an arbitration agreement?

At first instance, Croft J held that it was the party resisting enforcement, but the Court of Appeal held it was the party seeking enforcement.  Their decision involves a novel construction of s 8(1) of the International Arbitration Act 1974 (Cth) (IAA).  That sub-section provides that “a foreign award is binding by virtue of this Act for all purposes on the parties to the arbitration agreement in pursuance of which it was made.”  On the face of it, that sub-section merely provides for the “recognition” of awards and has no work to do at all in relation to the enforcement of awards.

However, both the judgments of Warren CJ and Hansen JA and Kyrou AJA held that s 8(1) is relevant to the enforcement of awards and provides an initial threshold that a party seeking enforcement of an award must meet.  In particular, the party seeking enforcement must establish a “prima facie” case that:

  • there is a foreign award
  • the foreign award was made pursuant to an arbitration agreement and
  • the foreign award was made against a person who was a party to that arbitration agreement.

The Court said that, in practice, providing a certified copy of the arbitration agreement and the award should establish those 3 matters, but where it is not clear on the face of the documents that the award debtor is a party, further evidence may be required.  

^Back to top

No more indemnity costs

The Victorian Court of Appeal also rejected Croft J’s analogies with Hong Kong cases in awarding indemnity costs against a party that unsuccessfully resisted enforcement of an award.  Instead, and consistent with costs orders in other areas of law, the Court held it was only in special circumstances that indemnity costs should be awarded.

^Back to top

What happened to the proper law?

An intriguing aspect of the decision, and one we noted in our earlier article (see here), is why the Court (and parties) approached the question of whether IMC was a party to the arbitration agreement under Mongolian law, even though the contract in which the arbitration agreement was contained provided for the governing law to be that of Queensland.3

The law that should govern whether or not a person is a party to an arbitration agreement is the law that governs the arbitration agreement, and usually, a governing law provision in the main contract provides a sufficient indicator that the parties intended for that law to govern the arbitration agreement as well.4

This point is important, because jurisdictions differ with respect to how they view the separate legal status of corporations (especially different corporations within the same corporate group) and have different laws with respect to the validity of agreements.  What may be seen as an agreement binding a person in one jurisdiction may be seen quite differently in another.  

Where it is important for the law to govern the arbitration agreement to be different from the law of the seat of arbitration, it is advisable to include in the arbitration agreement an express clause providing for the governing law of the arbitration agreement.  

^Back to top

Practical implications of the decision

  • It is preferable to consider and deal with issues of the arbitral tribunal’s jurisdiction at the earliest possible opportunity.  This may require seeking confirmation of jurisdiction from the courts of the seat of arbitration (as is permitted under the arbitral laws of most jurisdictions, including Australia).  This may not necessarily prevent an enforcement court reaching a different conclusion, but it could save significant costs of proceeding with an arbitration that only renders an unenforceable award.    
  • When seeking enforcement of an award in Australia, a party now needs to first establish a prima facie case that there is an arbitral award, made pursuant to an arbitration agreement, and that the award creditor and debtor were parties to that arbitration agreement.  Usually, presenting a certified copy of the award and arbitration agreement will suffice.
  • Where a specific law to govern the validity of the arbitration agreement is desired, you should consider including a clause in the arbitration agreement that expressly provides for the governing law of the arbitration agreement.  Usually, this should be the same law as the governing law of the contract in which the arbitration agreement is contained.
^Back to top

Endnotes

  1. For a full discussion on Dallah, see here.  
  2. Gouvernement du Pakistan – Ministère des Affaires Religieuses v Dallah Real Estate and Tourism Holding Company (Case No. 09/28533).
  3. This may have been because of the confusing drafting of the arbitration agreement.  It provided for arbitration in Mongolia “according to Mongolian or Hong Kong law”.  It might have been unclear whether that meant the agreement is to be construed according to Mongolian or Hong Kong law, or whether the arbitration itself is to be governed by Mongolian or Hong Kong law.
  4. See, eg, Gary Born, International Commercial Arbitration: Commentary and Materials (2001) at 753; Martin Davies, Andrew Bell and Paul le Gay Brereton, Nygh’s Conflict of Laws in Australia (8th ed, 2010) at 796.  
^Back to top