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Out of time and no reasonable prospects of success: Federal Court confirms threshold questions for applications to set aside arbitral awards

Sharma v Military Ceramics Corporation [2020] FCA 216

If "the whole scheme of the Model Law is to restrict court review of arbitration awards both with respect to grounds and time", parties must ensure applications to set aside arbitral awards are made in compliance with these requirements of the Model Law.

The recent Federal Court decision in Sharma v Military Ceramics Corporation [2020] FCA 216 demonstrates the importance of acting swiftly and the consequence of any delay.

In Sharma v Military Ceramics Corporation, Mr Sharma delayed making an application to set aside an arbitral award for a period of over one-and-a-half years after first receiving it. Upon the application of Military Ceramics Corporation, the Federal Court dismissed Mr Sharma's application on the basis that his application was well outside three month period specified in the Model Law and as such had no reasonable prospects of success.

The facts

In 2012, Military Ceramics Corporation (MCC) entered into a joint venture agreement with Mr Sanjay Sharma. This agreement required disputes to be resolved by arbitration. In 2013, MCC commenced arbitration proceedings against Mr Sharma in accordance with the joint venture agreement.

In April 2018, the arbitrator published the final award in the arbitration (the Final Award) which required Mr Sharma to pay MCC various sums totalling over US $5.8million. In August 2018, MCC commenced proceedings in the High Court of Delhi, India to enforce the Final Award.

The issue

On 29 November 2019, Mr Sharma commenced proceedings in the Federal Court of Australia seeking to set aside the Final Award under Article 34 of the UNCITRAL Model Law (Model Law).

In response to this application, MCC filed an interlocutory application seeking summary dismissal of the proceedings based on article 34(3) of the Model Law which requires that any application for setting aside an arbitral award be made within three months from the date on which the party making the application received the award.

Therefore, the question before the Court was whether Mr Sharma received the Final Award on or before 29 August 2019 (being three months prior to the date of filing the application).

The decision

The Court found that Mr Sharma had received the Final Award on at least three separate occasions prior to 29 August 2019 and, because of this, Mr Sharma had not made the application within three months from the date on which he received the Final Award and his application had no reasonable prospects of success. The Court therefore summarily dismissed the proceedings.

The Court also noted that, Mr Sharma identified numerous grounds to set aside the award however, few of the grounds would qualify as grounds to set aside an award under Article 34(2) of the Model Law.

The Court did not consider whether it had the power to extend the time period of three months provided for in Article 34(3) of the Model Law but noted that the balance of authority favours there being no power to extend the time period and, in any event, Mr Sharma had not contended that the Court has any such power.

A timely reminder of the requirements under the Model Law

In light of this decision, parties wishing to challenge arbitral awards under Article 34 of the Model Law should ensure that any application to do so:

  1. sets out a clear and concise basis for doing so on one of the grounds specified in Article 34(2); and
  2. is made within three months from the date on which that party receives the award.[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.]