Federal Court of Australia

Attempt to derail the arbitration process frowned upon

Publication May 2016

In Australia, any attempt to derail the arbitration process by involving the courts will be looked upon unfavourably. If you are unhappy with the process, go to the tribunal, wait for them to decide on the issues you raise, and do not seek court intervention prematurely. This point was underlined in 2015 when the Federal Court of Australia dismissed a challenge to the appointment of two arbitrators in the Sino Dragon v Noble Resources dispute.

Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [2015] FCA 1028

In October 2015 the Federal Court of Australia dismissed a challenge to the appointment of two arbitrators.

Case: Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [2015] FCA 1028

Client learning: arbitration in Australia

“In Australia, any attempt to derail the arbitration process by involving the courts will be looked upon unfavourably.”

In Australia, any attempt to derail the arbitration process by involving the courts will be looked upon unfavourably. If you are not happy with the arbitration process, you first need to exhaust the avenues available to you by approaching the tribunal and waiting for them to decide on the issues you have raised, rather than prematurely seeking court intervention.

Sino Dragon v Noble Resources examines the interplay between the courts’ jurisdiction and an arbitral tribunal’s jurisdiction under Australia’s International Arbitration Act (1974) (Cth) (which gives legal force in Australia to the Model Law), the UNCITRAL Model Law and the UNCITRAL Arbitration Rules.

The Sino Dragon v Noble Resources dispute

The dispute concerned whether Hong Kong company Sino Dragon Trading Ltd had breached its contract with Singaporean company Noble Resources International Pte Ltd (a subsidiary of the Noble Group) or whether the parties had varied the contract.

The contract contained an arbitration agreement. Noble Resources served an arbitration notice on Sino Dragon proposing ACICA (the Australian Centre for International Commercial Arbitration) as appointing authority and appointing M as an arbitrator. Sino Dragon did not respond and did not appoint an arbitrator.

Two months later, Noble Resources wrote to the Permanent Court of Arbitration in the Hague requesting that the Secretary- General designate the appointing authority and that it select ACICA.

The Permanent Court of Arbitration wrote to Sino Dragon and Noble Resources regarding Noble Resources’ request. When no response was received from Sino Dragon, W was appointed as the appointing authority.

When Sino Dragon still did not appoint an arbitrator, W appointed B as a second arbitrator. M and B appointed H as the third and presiding arbitrator.

Noble Resources advised W that they were not aware of any circumstances likely to give rise to justifiable doubts about B’s impartiality or independence. However, ‘for the sake of good order’, they advised that the firm in which B was a partner was acting for another subsidiary of the Noble Group in separate, unrelated proceedings in China, which might subsequently involve proceedings in Hong Kong. To the best of Noble Resources’ knowledge, B was not directly involved. B confirmed this, and added that the Chinese division was financially separate from the Australian division of the firm in which B was a partner.

Sino Dragon submitted to the Tribunal several challenges to the arbitrators’ appointments and then – before the last challenge had been determined – filed a court application challenging the appointments.

Sino Dragon argued that the court had power to consider a challenge to arbitrators (Model Law, article 13(3)); that the court had an independent common law jurisdiction to remove an arbitrator; and that the arbitrators had breached article 14 of the Model Law. It also sought a declaration that the arbitrators had not been validly appointed.

The court’s judgment

The court commented that Sino Dragon’s court application was brought ‘in the teeth of’ express provisions of Australia’s International Arbitration Act and the Model Law; it interrupted the arbitration process and created the potential for unnecessary delay to an arbitration which was not in itself complex.

The court held that article 13 of the Model Law sets out a stepped procedure for challenging an arbitrator. The parties had agreed on a procedure for challenging an arbitrator in their contract (which stated that any arbitration was to be conducted under the UNCITRAL Rules). On that basis, article 13(1) of the Model Law applied, not article 13(2). A court’s power under article 13(3) would only come into play if a challenge under article 13(1) were unsuccessful. That challenge was still before the appointing authority. Until W rejected Sino Dragon’s challenge, it was premature to ask the court to determine the challenge under article 13(3).

The court rejected what it referred to as Sino Dragon’s ‘surprising’ submission that the court had an independent common law jurisdiction to remove an arbitrator outside the application of article 13(3). It gave the following reasons

  • A court can only intervene in matters governed by the Model Law where each instance of court involvement is set out in the Model Law; the courts do not have a general or residual power to intervene in arbitration proceedings (article 5, Model Law).
  • If a court had such a power, it would amount to an unrestricted common law regime sitting alongside the prescriptive regime in article 13, thereby wholly undermining the efficacy of article 13.
  • There was no authority in support of Sino Dragon’s submission; all authority was against that submission.

The court rejected Sino Dragon’s submission that the arbitrators had failed to act without undue delay, in breach of article 14 of the Model Law. It gave the following reasons

  • Whether an arbitrator has failed to act without undue delay has to be considered in the context of the arbitration as a whole. Nothing suggests a breach of article 14; the evidence suggests the opposite.
  • The deferral of jurisdictional issues to the arbitration hearing is a procedural and case management decision, is an efficient and effective way of progressing the matter due to the fast-approaching arbitration hearing date, is not suggestive of undue delay and should not be second guessed by a court.

The court held that it could not rule on the tribunal’s jurisdiction before the tribunal itself did so, as this would contravene article 16 of the Model Law and be subject to appeal. The court held that, even if it had the power to make a declaration, given the discretionary nature of that remedy, there were ‘strong reasons’ in this case to refuse to exercise that discretion.

The court considered further criticisms levelled at the arbitrators by Sino Dragon. It stated

  • The decision to withdraw is a decision for the individual arbitrator, not for the tribunal. However, an arbitrator may consult the tribunal and consider its view when deciding whether to withdraw. In so doing, the challenged arbitrators had adopted the approach required by the UNCITRAL Arbitration Rules (article 13(3)).
  • In a court application challenging the appointment of arbitrators, it is appropriate for the challenged arbitrators to file a submitting appearance (that is, not to challenge the application but to submit to the court’s decision).

Dylan McKimmie and Meriel Steadman are partners in the Perth office of Norton Rose Fulbright.


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