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Ignorance may not be bliss: wilful failure to take part in arbitral proceedings against you will not necessarily make the award unenforceable

Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116

A recent Federal Court of Australia (FCA) decision provides comfort to parties seeking to enforce overseas arbitral awards against others who have intentionally avoided the arbitration process.

Commercial contracts between parties often include a process by which parties can, or must, refer disputes under the contract to an arbitration forum. If an award is granted to one of the parties by an overseas arbitration forum, the successful party may seek enforcement of the award in Australia by obtaining an order to this effect from the FCA. If such an application for enforcement is opposed by the other party, the FCA will consider any grounds for refusing to enforce the award specified in the International Arbitration Act 1974 (Cth) (IAA) including, among others, whether it would be contrary to public policy to do so.

What if, despite best intentions at the time of contracting, the party responding to an arbitration proceeding simply refuses to acknowledge or engage in the arbitration proceeding? Could that party argue that, because they were absent during the proceeding, it would be against public policy to enforce any award made against them? The decision of Jagot J in Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116 explores this issue.

Facts

In 2010, Energy City Qatar Holding Company (ECQ) entered into a contract with Hub Street Equipment Pty Ltd (Hub) (Contract). The Contract relevantly provided that any dispute that was not settled within 28 days was to be referred to arbitration. The Contract also required that:

  • a party seeking to commence arbitration was to give the other 45 days' notice of same (Notice Clause);
  • the arbitration tribunal was to consist of three members: one selected by each party, and a third as mutually agreed (Composition Clause); and
  • the Contract was to be governed by Qatari law.

ECQ subsequently decided not to proceed with the Contract, and a dispute arose concerning an advance payment ECQ had made and which Hub refused to repay (Dispute). In June 2016, ECQ filed proceedings in the Qatari Plenary Court of First Instance (Court) and sought orders appointing an arbitral tribunal to resolve the Dispute. These actions by ECQ did not adhere to the Notice Clause in commencing the Court proceedings and, in addition, it was ultimately argued by Hub that the orders sought were also contrary to the Composition Clause. ECQ's position was that the orders were sought in accordance with a Qatari statute which provided that where a dispute arises between parties prior to any agreement as to the composition of any arbitration tribunal, 'the court which has jurisdiction to consider the dispute shall appoint the necessary number of arbitrators at the request of one of the parties'.

Hub did not receive notice of the Court proceedings until December 2016 and, a month later, the Court appointed an arbitration tribunal to resolve the dispute (Tribunal). The Tribunal notified Hub of its appointment and its proceedings, however Hub failed to appear on any of the occasions. The Tribunal determined the dispute in Hub's absence and granted an award in favour of ECQ.

The enforcement proceedings in Australia

ECQ brought proceedings in the FCA seeking to enforce the award against Hub in Australia. Unsurprisingly, Hub objected to enforcement of the award on a number of grounds, including that:

  1. Hub had not received proper notice from ECQ in accordance with the Notice Clause, nor had it received notice of the arbitration proceedings;
  2. due to the lack of notice, it was unable to present its case to the Tribunal;
  3. the Tribunal was not established in accordance with the Composition Clause;
  4. the proceedings of the Tribunal were not conducted in English, as was agreed in the Contract; and
  5. in consideration of all of the above, the award made by the Tribunal involved a breach of natural justice and would therefore be contrary to public policy if so enforced.

The FCA decision

The FCA made orders enforcing the award against Hub in Australia.

Justice Jagot considered that, despite Hub's best efforts to make submissions to the contrary, there was sufficient evidence to infer that Hub was aware of both the Court proceedings and the Tribunal proceedings. Further, whilst the Tribunal may not have been established in accordance with some aspects of the Contract, it was nevertheless established in accordance with Qatari law. Hub was therefore not justified in its failure to acknowledge or engage in the proceedings against them, and that to intentionally do so could not be said to amount to prejudice or a denial of natural justice.

What does this mean for others?

The Court's decision confirms that a party cannot avoid enforcement of an arbitral award simply by failing to acknowledge or engage with proceedings of which they were aware; even if there may be contractual requirements for service or notification which were not met.

That said, the message is not that a party should be satisfied with a notification or service procedure that is not in accordance with their contract. Rather, a party is expected to raise deficiencies of notice or service if they are, in practical terms, aware of a dispute being raised / arbitral proceedings being commenced.

It is still essential that parties obtain an arbitral award in compliance with the terms of their agreement. In particular, it must be shown that any award obtained through an overseas mechanism does not provide grounds for refusing to enforce the award under the IAA. However, parties may seek comfort in the notion that wilful ignorance does not of itself allow parties to avoid enforcement of an arbitral award against them in Australia.[1]


[1] Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.