The Federal Court of Australia - Liquidation no shield against enforcement

Introduction

On April 19, 2013, Justice Foster of the Federal Court of Australia handed down judgment in the case of Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356. At issue in the case was whether a foreign arbitral award made in China could be enforced in Australia against an Australian company in liquidation. In finding that the award could be enforced, the Federal Court has reaffirmed its commitment to the enforcement of foreign arbitral awards.

Statutory framework and background

Eopply, the award creditor, had sought leave from the Federal Court to enforce the arbitral award made by the China International Economic and Trade Arbitration Commission (CIETAC) on February 15, 2012. EP Solar, the award debtor, had liquidators appointed one week after proceedings commenced.

The Australian International Arbitration Act 1974 (IAA) provides for the enforcement of a foreign award by the Federal Court without leave of the court (section 8(3)). However, the Corporations Act provides that leave of the court is required to commence proceedings against a company being voluntarily wound up (section 500(2)).

Furthermore, section 39 of the IAA provides that when exercising a power to enforce a foreign award, the court must have regard to the objects set out in section 2D of the IAA and to the fact that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes and awards are intended to provided certainty and finality.

The IAA also gives the court very limited discretion to refuse enforcement, in sections 8(5) and 8(7), that mirror the grounds for refusal in article 5 of the New York Convention. The matters in these sections include demonstrating that the award is a foreign arbitral award, that the award was made under a valid arbitration agreement and pursuant to proper procedure, and the provision to the court of appropriately authenticated documents.

Leave to proceed (the Corporations Act, section 500(2))

In deciding whether to grant leave, Justice Foster extracted the following considerations from the judgment of Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484:

1. The requirement for leave is to prevent a corporation in liquidation being subjected to expensive and perhaps unnecessary actions.
2. For leave to be granted, it must be shown that there is a serious or substantial question to be tried and a real dispute between the parties.
3. The court should consider whether the balance of convenience lies in allowing a creditor to proceed to judgment or whether the creditor should pursue its claim by way of proof of debt.

In this case, Justice Foster determined as follows:

1. If leave were to be granted, practically no additional expense would be incurred by EP Solar since judgment would be entered immediately.
2. The liquidators did not oppose leave to proceed being granted to Eopply under section 500(2) of the Corporations Act.
3. “[T]here is good reason to make the path to recovery by the award creditor easier by granting leave and allowing judgment to be entered rather than leave the award creditor to the vagaries of the proof of debt process.”

When deciding whether the requirements of section 39 of the IAA had been satisfied, Justice Foster also took into account the fact that the liquidators did not oppose Eopply’s claim, concluding that:

Although there is no evidence before the Court as to the financial position of the respondent and thus no basis upon which the Court can make an assessment as to whether the award creditor is likely to recover any part of the amount awarded to it, the above considerations weigh heavily in favour of the grant of leave. In my judgment, there is no consideration of any moment which would weigh in the balance against the grant of leave.

Having satisfied itself that Eopply had produced to the court (pursuant to section 9 of the IAA) a duly certified copy of the relevant arbitration agreement and the award, and the fact that the liquidators did not challenge the enforceability of the award on one or more of the grounds specified in sections 8(5) and 8(7) of the IAA, the court ordered that the award be duly enforced.

Lessons learned

This decision reaffirms the Federal Court’s commitment to the enforcement of foreign arbitral awards, consistent with the proenforcement approach of the New York Convention.

The decision also confirms that, unless the resisting party is able to prove to the court’s satisfaction that one of the grounds specified in sections 8(5) and 8(7) of the IAA has been engaged, the award creditor will be entitled to have its award enforced in Australia.