The Federal Court of Australia recently determined an application brought by the administrators of a company in voluntary administration seeking judicial guidance on how to deal with claims for costs and interests resulting from two prior arbitrations. The key issue was whether the costs and interests awarded in the previous arbitrations were admissible to proof in the administration of the company, having regard to the fact that the relevant arbitral awards were made after the appointment of administrators.
Tag: Leon Chung
THE THIN RED LINE: AUSTRALIAN COURT REDLINES CONFIDENTIALITY OF ARBITRATION PROCEEDINGS
The Harman confidentiality undertaking (or obligation of confidentiality of documents obtained pursuant to discovery, document production or subpoena) is well established: in principle, information obtained pursuant to discovery or subpoena cannot be used for a collateral or ulterior purpose unrelated to the proceedings in which that production occurs. From time to time there is some debate around the scope and limits of the obligation, and this is one of those times.
ARBITRATION OF INSOLVENCY DISPUTES: THE VIEW FROM THE AUSTRALIAN COURTS
Two recent judgments from different Australian courts have considered circumstances in which insolvency disputes can (or cannot) be arbitrated in accordance with pre-existing arbitration agreements. In particular, the decisions address the following two key issues:
- when certain insolvency claims can be arbitrated; and
- when a third party can participate in arbitral proceedings either claiming or defending ‘through or under’ a party to the arbitration agreement.
NEW SOUTH WALES SUPREME COURT SETS ASIDE ARBITRATION AWARD TO PROTECT THE INTEGRITY OF THE ARBITRATION PROCESS
INTRODUCTION AND TAKEAWAY
In a recent decision, the Supreme Court of New South Wales set aside an arbitral award on the basis that the arbitrator had failed to give one party a proper opportunity to present its case. While there is a high bar for judicial intervention in arbitration proceedings, Australian courts will act to protect the integrity of the arbitration process when arbitrators fail to uphold its fundamental safeguards.
WESTERN AUSTRALIA SUPREME COURT REAFFIRMS ‘REAL DANGER OF BIAS’ TEST FOR CHALLENGES TO ARBITRATORS
The Supreme Court of Western Australia has confirmed that the appropriate test for determining whether there were any ‘justifiable doubts’ as to the independence or impartiality of an arbitrator, under the Commercial Arbitration Act 2012 (WA) (CAA)[1] is whether there is a ‘real danger of bias’. In making its decision, the Court largely applied and upheld Ball J’s decision in Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724 (Hancock) (which we previously outlined here). This is a welcome decision that reaffirms a high threshold in challenging the appointment of an arbitrator in Australia, providing greater commercial certainty as to the operation of negotiated arbitration clauses.
TAKEAWAYS
- There is a continuing obligation on an arbitrator to disclose any circumstances that might give rise to ‘justifiable doubts’ as to their independence or impartiality;
- Any challenges to an arbitrator’s appointment should be made in light of these disclosures or any other current discernable facts (as opposed to an evaluation of matters that might arise in the future); and
- The test for determining whether there are justifiable doubts as to the independence or impartiality of an arbitrator is objective and imposes a high bar of proving, on a balance of probabilities, that there is a ‘real danger of bias’ on any challenger.
ARBITRATION ON THE RISE IN AUSTRALIA: ACICA REFLECTS ON A DECADE OF GROWTH
The Australian Centre for International Commercial Arbitration (ACICA) has released its report: ‘Reflections on the Last Decade of Activity at ACICA’, in celebration of 10 years since significant legislative reforms were made to increase the efficiency and effectiveness of arbitration in Australia. The report coincided with the 10th anniversary of the annual Australian Arbitration week and provides key statistics on the growth of the Australian arbitration sector between 2011 and 2021.
Key numbers
The report highlights the following headline statistics:
- ACICA has been involved in arbitrations concerning $24 billion over the last 10 years;
- Of the $24 billion claimed in ACICA administered cases, energy and resources disputes accounted for $18.8 billion, with construction and infrastructure disputes following at almost $4 billion;
- 39% of ACICA cases had at least one party not based in Australia and 11% where neither party was based in Australia;
- 54% of ACICA’s cases were resolved within 12 months; and
- 40% of arbitrator appointments in ACICA cases in 2021 were to women.
International reach
The report underlines ACICA’s increased international reach. It is relevant to note that the 39% of cases having at least one party not based in Australia and 11% of cases where neither party was based in Australia, do not include cases where a foreign entity had engaged in arbitration via a local subsidiary.
The report also highlights the diversity in the nationalities of the claimants in ACICA proceedings, with the most represented nationalities after Australia being Singapore and the USA, each accounting for 4%. ACICA’s cases also involved claimant parties from Germany, Switzerland, Fiji, Hong Kong, Italy, Philippines, Spain, Malaysia, British Virgin Islands, Papua New Guinea and Cyprus. In turn, Singapore and Papua New Guinea were the most commonly recorded nationalities of the responding parties, accounting for 4% and 3% respectively.
The release of frequent updates to the ACICA arbitration rules reflecting best international practice has likely contributed to ACICA’s increased international reach. Over the last decade, ACICA has released four iterations of its rules. The most recent ACICA rules have been in force since 1 April 2021. Over the last decade, 54% of arbitrations were administered under the 2016 rules, 22% under the 2011 rules and 5% of arbitrations were submitted under UNCITRAL rules.
Growth of arbitration in Australia
Ultimately, the report demonstrates the continued growth of international arbitration in Australia, in line with the findings of ACICA’s inaugural Australian Arbitration Report, launched in March 2021.
As we previously outlined here, the report shows that there were 223 active arbitrations with an ‘Australian connection’ for a combined value in excess of A$35 billion during the 2017-2019 period. Of these 223 arbitrations, 111 were international arbitrations (with a combined value of approximately $26 billion). While the most favoured arbitration rules for international arbitrations were those of SIAC and the ICC and the most popular arbitration seat was Singapore, the survey indicated a growing inclusion of ACICA arbitration clauses to the point of near parity to the leading international rules. This trend may translate into a greater number of Australian-seated ACICA arbitrations in the future.
This growth in Australian arbitration has been bolstered by increased judicial support for arbitration, as we outlined here.
Other notable developments in the last few years include Australia’s ratification in 2020 of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the ‘Mauritius Convention’) (see here for more information), as well the government’s review of Australia’s Bilateral Investment Treaties (as we outlined here).
Second edition of the ACICA Survey
With a view of continuing to improve the international arbitration practice in Australia, ACICA has again partnered up with FTI Consulting for the second edition of the ACICA Survey on arbitration in Australia. We encourage our readers to participate in the survey in order to increase the quality of data generated so that ACICA can better identify the current issues in the practice and promote the direction best practice is taking in the sector. The survey only takes about 30 minutes to complete.
Arbitration at Herbert Smith Freehills
Herbert Smith Freehills is proud to have been actively involved in the development of arbitration in Australia and has worked closely with ACICA over the last decade.
Our Australian based international arbitration practice is fully integrated with our global arbitration practice and assists with arbitration matters both domestically and around the world. This allows our team to leverage its global experience in key arbitration seats globally and within Australia’s growing arbitration sector.
For further information, please contact Elizabeth Macknay, Partner, Leon Chung, Partner, Chad Catterwell, Partner, Guillermo Garcia-Perrote, Executive Counsel, or your usual Herbert Smith Freehills contact.
Elizabeth Macknay
Partner
+61 8 9211 7806
Leon Chung
Partner
+61 2 9225 5716
Chad Catterwell
Partner
+61 3 9288 1498
Guillermo Garcia-Perrote
Executive Counsel
+61 2 9322 4903
Australian court sets a high bar for challenges to arbitrators
The Supreme Court of New South Wales has recently confirmed that, in Australia, the relevant test for challenges to the independence or impartiality of arbitrators is the ‘real danger of bias’ test, rather than the lower threshold of the ‘reasonable apprehension of bias’ test applicable at common law. Continue reading
ENSURE SMOOTH SAILING: SEEKING A SUBPOENA IN SUPPORT OF ARBITRATION
A recent decision of the Federal Court of Australia sheds light on how to effectively seek a subpoena from a court in support of arbitration proceedings.
Takeaways
The Court is not overly prescriptive in setting out the criteria for the grant of a subpoena, but this is not to be confused with the Court giving the arbitral tribunal carte-blanche, simply providing a rubber-stamp to subpoena requests.1
Parties should therefore be purposive in the documents sought in the subpoena. This is particularly important in arbitration proceedings where assistance from the court is needed, in order to avoid delay and ensure the effectiveness of the subpoena being sought.
Context
This decision of the Federal Court of Australia in Mountain View Productions LLC v Keri Lee Charters Pty ltd [2022] FCA 161 resolved a piece of litigation brought in relation to an arbitration seated in Queensland, in which a Brisbane company, Keri Lee Charters Pty Ltd (the claimant in the arbitration), alleged that its 55-metre luxury motor yacht sustained $12.85 million worth of damage during charter.
The respondent in the arbitration, a Californian company, Mountain View Productions LLC, made an application to the Federal Court for a non-party to the dispute (another Queensland business) to be issued a subpoena to produce documents under s 23(3) of the International Arbitration Act 1974 (Cth) (IIA). Damage to the vessel was apparent by contrasting the reports prepared before and after the hire of the vessel. On the respondent’s submission, the reports were deficient in that they omitted existing damage to the vessel.
Seeking a subpoena in support of arbitration
A party who wishes to subpoena a person to come before an arbitral tribunal and/or produce documents listed in a subpoena must first receive consent from the tribunal.2 As set out in the decision, in reaching its determination, the arbitral tribunal will consider the effect the subpoena may have on the proceedings generally (ie whether it will cause delay, disruption, or indeed assist the arbitrators); whether the subpoena is being sought for a genuine purpose; and crucially, that the requesting party is not using the subpoena as a tactic to draw out proceedings.3
The Federal Court is alive to the fact that arbitrators are best placed to assess the relevance of the documents sought in the subpoena –they are most familiar with the issues in dispute and how they might be proved. The Court is therefore reticent to challenge arbitrators’ conclusions on whether the document and/or person sought in the subpoena are relevant, save in a clear case.4
Decision
The issue here was not strictly of relevance, but of reasonableness. Central to the concern of the Court was the fact that the documents sought were not delimited by a specific time-period; the subpoena merely noted that ‘all documents’ exchanged between the companies with respect to the repair and charter of the vessel were to be produced. In practice, this meant (assuming the documents existed) producing documents that were created more than a decade prior to the events that were subject to the dispute.
The Court held that this aspect of the subpoena was unreasonable, since producing such a wide range of documents would have no legitimate forensic purpose. In particular, the Court observed that if the subpoena requested documents which spanned a more limited time frame, this would be ‘amply sufficient’ and reasonable. Therefore, the court ordered the subpoenas but imposed a limitation of documents brought into existence within the period commencing two years prior to the charter in issue.
For more information, please contact Leon Chung, Partner, or Guillermo Garcia-Perrote, Executive Counsel, or your usual Herbert Smith Freehills contact.
Leon Chung
Partner
+61 2 9225 5716
Guillermo Garcia-Perrote
Executive Counsel
+61 2 9322 4903
- Mountain View Productions LLC v Kerri Lee Charters Pty Ltd [2022] FCA 161 [13] citing Australian Gas Light Co v ACCC [2003] FCA 1101 [8] (French J).
- International Arbitration Act 1974 (Cth) s 23(2).
- Mountain View Productions LLC v Kerri Lee Charters Pty Ltd [2022] FCA 161 [10].
- at [12-13].
NO ENFORCEMENT WITHOUT NOTICE: FEDERAL COURT OF AUSTRALIA DECLINES TO ENFORCE AN AWARD FOR FAILURE TO GIVE PROPER NOTICE OF THE ARBITRATION
In a recent post, we considered the careful and considered approach taken by Australian courts in striking the balance between a pro-enforcement stance and critical due process safeguards when enforcing foreign arbitral awards.
In Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477, the Federal Court of Australia maintained this balance by declining to enforce an award against an award debtor who had not been served in accordance with the arbitration agreement or the chosen institutional rules, and therefore had not been given proper notice of the arbitration. Continue reading
State of play of investment treaty arbitration in Australia
Investment protection regimes are at a crossroads globally. Different governments, trading blocks and interest groups are pushing their policy agendas in diverging directions when it comes to bilateral and multilateral investment protection schemes. Australia is no exception to this debate.
In this note we canvass some of the key developments in the investment treaty arbitration space in Australia, including:
- Australia’s review of its Bilateral Investment Treaties;
- the upcoming Australia-EU and Australia-UK Free Trade Agreements; and
- recent legislative measures and political discussion in relation to foreign investments in infrastructure assets in Australia.
Review of Australia’s Bilateral Investment Treaties
Following the Federal Government’s announcement that it was reviewing the BITs to which Australia is party (which we have commented upon previously), the Department of Foreign Affairs and Trade (DFAT) sought submissions to inform the Federal Government’s position on whether to continue, amend, renegotiate or terminate the BITs to which Australia is a party, or replace them with comprehensive free trade agreements (FTAs).
DFAT has recently published 27 submissions it received. The submitters came from a broad range of backgrounds and included industry bodies, business councils, associations, universities, law societies, law firms, law academics and economists.
The key take away is that the majority of submitters considered that Australian BITs should maintain their investor-state dispute settlement (ISDS) provisions, but that the BITs should be modernised and ‘tweaks’ should be made. Australia is considered a thought leader in the investment protection space in the Asia-Pacific region and how Australia chooses to respond to those questioning the continuing utility of ISDS provisions under its BITs will be closely watched.
Although a range of issues were raised and potential tweaks proposed, some particular points of interest include:
A. Clarifying the scope of investment protections
There was widespread support for improving or modernising Australia’s BITs, in particular:
- The fair and equitable treatment (FET) obligations in Australia’s BITs were described as unrestricted. A number of submitters recommended that the FET obligations be refined to address the scope or standard of conduct that will violate the FET standard.
- Some Most Favoured Nation (MFN) provisions in Australia’s BITs were described as potentially allowing investors to benefit from the most generous protections found in any of Australia’s BITs, without limitation. Certain submitters recommended that the operation of MFN clauses needed to be limited after considering Australia’s policy objectives.
- Australia’s BITs do not provide guidance on determining when indirect expropriation has occurred. Certain commentators considered it would be useful to identify factors for determining whether indirect expropriation had occurred.
B. Tightening fork-in-the-road provisions
Some of Australia’s BITs were reported to contain ‘uncertain’ fork-in-the road provisions. Fork-in-the-road provisions typically bind an investor to its chosen dispute resolution process (usually domestic courts or arbitration), so they cannot seek to pursue their claim in both forums. It was suggested that these provisions be reinforced to ensure that an investor could only use one forum.
C. Responsibility for State Government actions
An issue identified with Australia’s BITs was the silence on whether BITs bind the Federal Government for State Government actions, and whether the substantive obligations in BITs apply to State Government actions. One potential avenue for dealing with State Government compliance risk identified in the submissions was to exclude liability for State Government acts.
D. Transition to renewable energy
Concerns, whether rightly or wrongly held, were raised regarding the potential ‘chilling’ impact some claim ISDS provisions may have on Australia’s sovereign right to regulate, in particular in relation to human rights, labour rights, equality and the environment. A concern that gained some attention was the potential for an investor claim to be brought against Australia based on Australia’s measures to protect the environment, such as meeting the objectives set out in the Paris Agreement (see our overview here), namely the transition to renewable energy.
We will issue an update once DFAT publishes its findings from the BITs review.
Upcoming Australia-EU Free Trade Agreement
Australia is seeking an ambitious and comprehensive FTA with the European Union (EU) which from time to time has been Australia’s largest source of foreign investment. As a bloc the EU is Australia’s second largest trading partner, third largest export destination, and second largest service market.
Australia’s approach to FTAs
It is likely that the FTA will include a comprehensive investment chapter that provides for substantive protections and seeks to regulate ISDS.
DFAT has indicated that it is committed to seeking improved market access for Australian investment and that it will also seek an undertaking from the EU not to impose residency and/or citizenship requirements on senior representatives of Australian companies established in the EU. DFAT has also indicated its commitment to upholding Australia’s right to regulate for “legitimate public purpose and screen investments for national interest”.
The EU’s push for bilateral and multilateral Investment Courts
Much ink has been spent debating the relative advantages and disadvantages that would attend a permanent Investment Court operating as the final and sole arbiter (subject to an appellate mechanism) of investment disputes. Advocates point to issues of coherence and consistency with ISDS as well as the perennial question of costs, whilst detractors point to the potential politicisation of such a body and question its capacity to address the perceived concerns around ISDS.
Investors will be particularly interested in how Australia responds to any suggestion by the EU that the proposed FTA replace the ISDS mechanism with an Investment Court System. The EU in its recently negotiated investment agreements with Canada, Mexico, Singapore and Vietnam has jettisoned ISDS in favour of establishing a bilateral Investment Court. Under each treaty a standing tribunal is established, with members pre-selected by the contracting states, invested with power to establish its own procedural rules. In one of our previous blog posts we have considered the Investment Court System under the Canada-EU Comprehensive Economic and Trade Agreement and the procedural rules adopted there.
These agreements also include provisions allowing for the transition to a multilateral Investment Court System. Such a body, made up of pre-selected members, would in principle provide a procedural framework for any investment dispute arising under any treaty that submits to its jurisdiction.
In March this year the EU released its report of the 10th round of negotiations which indicated that Australia and the EU have agreed on “objectives for the [Dispute Settlement] Chapter, which include transparent, efficient and effective dispute settlement procedures”. The report also indicates that good progress has been made on the articles relating to the substantive investment protections to be included in the investment chapter.
We will issue an update if further information is released regarding ISDS under the proposed Australia-EU FTA.
Australia-UK Free Trade Agreement
On 15 June 2021, Prime Ministers Scott Morrison and Boris Johnson announced that Australia and the UK had reached an ‘in principle’ agreement on core elements of a new FTA. In a media release, DFAT indicated that, “When the agreement is finalised it will deliver the most comprehensive and liberal agreement outside [Australia’s] partnership with New Zealand”.
The UK is one of Australia’s largest trading partners for both goods and services. According to the information released to date, when the agreement comes into force, 99 per cent of Australian goods will be able to enter the UK duty-free. Tariffs on wine and rice will be eliminated upon entry into force, while tariffs on beef, sheep, and sugar will be eliminated in eight to 10 years. The agreement will also contain provisions to improve the ease of investing and doing business, and provisions to enhance recognition of qualifications for professional services.
Although the investment chapter contains a number of investment protections, there will be no ISDS mechanism. DFAT has indicated that, “as two well governed countries with a strong investment relationship, sound domestic legal systems and a strong commitment”, there is no need for ISDS in the FTA.
DFAT have declined to give a precise timeframe on when the FTA is likely to be finalised, noting that the negotiations will be concluded “as quickly as possible, without compromising on quality or ambition”.
Recent legislative measures and government initiatives
Australia has recently introduced Australia’s Foreign Relations (State and Territory Arrangements) Act 2020 (Cth), which establishes a legislative scheme for Commonwealth engagement with arrangements between State or Territory governments and foreign governments, and their associated entities. Relevantly, the Act empowers the Minister for Foreign Affairs to review, and potentially veto, any existing and prospective arrangements between State/Territory governments and foreign entities. Previously, the Security of Critical Infrastructure Act 2018 (Cth) sought to address national security risks posed by foreign involvement in Australia’s critical infrastructure, namely around 200 assets in the electricity, gas, water and ports sectors.
Recent discussion concerning Darwin Port and how the Federal Government may utilise the new legislative framework to potentially affect the 99-year lease of the port granted to the Chinese-owned Landbridge have drawn increased attention to foreign investments in Australian infrastructure.
Looking forward
Many will be watching Australia’s next moves in the investment protection space, be it investors or counterparties to its BITs and upcoming FTAs.
DFAT’s conclusions on its review of Australia’s BITs and the negotiations of the EU-Australia FTA and the UK-Australia FTA will be closely watched alongside ongoing discussion concerning Darwin Port and other investments in Australian infrastructure.
For more information, please contact Leon Chung, Partner, Guillermo García-Perrote, Senior Associate, or your usual Herbert Smith Freehills contact.
Leon Chung
Partner, Sydney
+61 2 9225 5716
Guillermo Garcia-Perrote
Senior Associate, Sydney
+61 2 9322 4903
Imogen Kenny
Solicitor, Melbourne
+61 3 9288 1657
Mark Peters
Law graduate, Sydney
+61 3 9322 4099