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Shining the (street) light on the enforcement of foreign awards in Australia

Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110

This decision of the Full Court of the Federal Court provides useful guidance on the enforcement of foreign awards in Australia, and in particular, on the nature of the discretion available under section 8 of the International Arbitration Act 1974 (Cth) (IAA), for an Australian Court to enforce a foreign award, notwithstanding any defects in the proceeding. This is of significance as prior to this decision, there was no authoritative statement in Australia on the nature of that discretion.

In this case, the Full Court of the Federal Court allowed the appeal, finding that the foreign award was not enforceable in Australia because the arbitral tribunal was not composed in accordance with the agreement between the parties. The Full Court also refused to exercise the discretion available to it to enforce the foreign award pursuant to section 8 of the IAA, on the basis that the irregularity (that is, that the arbitral tribunal was not composed in accordance with the agreement of the parties) was fundamental to the structural integrity of the arbitral proceeding.

Background

Hub Street Equipment Pty Ltd (Hub) and Energy City Qatar Holding Company (ECQ) entered into a contract for Hub to supply and install street lighting equipment, street furniture and accessories, in Doha, Qatar (Agreement). The Agreement provided that it was subject to the laws of the State of Qatar and included a dispute resolution clause which, in effect, provided that:

  • if a dispute was not resolved within a specified period of time, the dispute must be referred to arbitration, in accordance with the rules of arbitration in Qatar; and
  • in forming the arbitration committee (which must consist of three members), one member is to be appointed by each party within 45 days of one party receiving a written notice from the other party to start the arbitration proceeding. The third member, who is to chair the arbitration committee, is to be mutually chosen by the first 2 members.

ECQ, after making an advance payment to Hub under the Agreement, decided not to proceed with the Agreement, and sought repayment of that advance payment from Hub. Following some discussions between the parties, Hub retained the money that ECQ had paid to it.

ECQ commences Qatari Court proceedings to appoint arbitral tribunal to determine dispute

ECQ brought proceedings in the Plenary Court of First instance of the State of Qatar, seeking orders that the Court appoint an arbitral tribunal of three arbitrators, including an arbitrator nominated by ECQ, in accordance with Article 195 of the Civil Procedure Code of Qatar. Critically, prior to commencing the proceeding, ECQ did not send a notice to Hub regarding the formation of the arbitration committee, as required by the dispute resolution clause under the Agreement.

Subsequently, ECQ sent a notice, notifying Hub of the proceeding. The notice was not sent to the address in Sydney at which Hub had agreed to receive notices under the Agreement and was instead delivered to the office of a related company in Qatar. The notice came to the attention of Hub's directors, however, Hub did not participate in the proceeding before the Qatari Court.

Arbitration proceeds without Hub and arbitral tribunal issues award in ECQ's favour

Pursuant to orders of the Qatari Court, an arbitral tribunal was appointed to determine the dispute. Hub did not participate in the arbitration, despite being sent six notices to its nominated address regarding the arbitration. The arbitration was also adjourned on three occasions, due to Hub's failure to attend. Ultimately, the arbitral tribunal issued an award in ECQ's favour, obliging Hub to pay the full value of the advance payment, as well as compensation against damages incurred by ECQ and the fees of the arbitration.

ECQ seeks to enforce foreign award against Hub in Australia

ECQ made an application to the Federal Court, seeking to enforce the foreign award against Hub in Australia, pursuant to section 8 of the IAA, which, subject to a number of exceptions, allows a foreign award to be enforced by the Federal Court, as if the award were a judgment or order of that court.

The primary judge's decision

At first instance, Hub resisted enforcement of the foreign award under section 8 of the IAA, relying on the operation of certain exceptions under that provision, including that:

  • Hub had not received proper notice of the arbitration and was unable to present its case in that proceeding;
  • the foreign award involved a breach of the rules of natural justice and thus, it should not be enforced as it would be contrary to public policy to do so;
  • the arbitral procedure was not in accordance with the Agreement in that, contrary to its terms, it was not conducted in English and the award was issued in Arabic; and
  • Hub did not receive proper notice of the appointment of the arbitrators and the composition of the arbitral authority was not in accordance with the Agreement.

The primary judge rejected Hub's argument, reasoning that notices from the arbitral tribunal to Hub about the arbitration were in English and Hub decided to ignore them and take no part in the arbitration, despite knowing that it was being conducted. Having done so, the primary judge found that there was no prejudice to Hub occasioned by the fact that the arbitral proceeding was conducted, and the foreign award was issued, in Arabic. The primary judge also held that Hub held the onus of proof and that it had not proven that the appointment of the arbitrators by the Qatari Court was not in accordance with the dispute resolution clause in the Agreement.

The primary judge also held that even if her Honour was wrong in rejecting Hub's grounds for resisting enforcement of the foreign award, the primary judge would nevertheless have declined to exercise the discretion to refuse enforcement, given by s8(5) of the IAA, in Hub's favour, on the basis that Hub had received:

  • notice of the proceeding in the Qatari Court and was aware that the notice concerned ECQ seeking repayment of the money ‘yet did nothing to ascertain what the proceeding was about’[1]; and
  • notice of the composition of the arbitral tribunal and the conduct of the arbitration in ample time to take a role in the arbitration, but chose not to do so.

Accordingly, there would be no unfairness to Hub by enforcing the foreign award against it.

Hub's appeal

Hub raised two principal issues on appeal:

  • that the foreign award should not be enforced because Hub was not given proper notice of the arbitration proceeding and the composition of the arbitral tribunal was not in accordance with the Agreement; and
  • that any residual discretion under section 8 of the IAA, to enforce the foreign award despite a ground for non-enforcement being established, was not enlivened or should not be exercised. Hub submitted that the primary judge ought to have concluded that the failure to conduct the arbitration in English was a fundamental departure from the agreed arbitral procedure with the consequence that the Court's narrow residual discretion under section 8 of the IAA to enforce a foreign award was not enlivened.

The composition of the arbitral tribunal was not in accordance with the Agreement

Stewart J, with whom Allsop CJ and Middleton J agreed, held that Hub proved, to the requisite standard, that the composition of the arbitral tribunal was not in accordance with the Agreement. The Full Court held that the conclusions to draw from the evidence are that:

  • the dispute resolution clause in the Agreement required the notice and invitation to appoint an arbitrator procedure to be followed and Article 195 of the Civil Procedure Code of Qatar gave the Court power to appoint arbitrators where the parties had failed to agree; and
  • the Qatari Court had acted on a misapprehension that the dispute resolution clause in the Agreement had been followed and that the process had failed to produce the appointment of an arbitral tribunal.

Accordingly, the Full Court held that the basis to resist enforcement of the foreign award under s8(5)(e) of the IAA had been established.

The Full Court also dismissed ECQ's argument that Hub should have sought to set aside the appointment of the arbitral tribunal in Qatar, rather than to rely on the wrong composition of the tribunal as a ground to resist enforcement of the foreign award in Australia. The Full Court held that, contrary to ECQ's argument, ‘there is no detraction from the principle of comity’,[2]as ‘the defect in the proceeding is not attributable to the decision of the Qatari Court to appoint the arbitral tribunal, but to the premature involvement of the Qatari Court at the suit of the ECQ[3]

The Full Court further stated:

‘any exercise of jurisdiction of the Qatari Court to appoint arbitrators to the dispute of the parties rested on the parties’ agreement, and since what they agreed was not followed the basis for the exercise of that jurisdiction was lacking; the failure goes to the very heart of the decision that ECQ would have this Court recognise. … Hub has the right (subject to the question of discretion which I will come to) under the law of Australia to not have enforced against it here an arbitral award by an arbitral tribunal that was not composed in accordance with what it had agreed. Section 8(5)(e) of the IAA is a law of the Commonwealth of Australia that the Court cannot merely brush aside in the interests of comity; the Court is duty bound to apply it.'[4]

The residual discretion under s8 of the IAA was not enlivened

The Full Court found that there was no authoritative statement in Australia of the nature of the discretion to enforce a foreign award under section 8 of the IAA and accordingly, the Full Court considered international arbitration authorities on this point.

The Full Court also considered the pro-enforcement bias of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention,[5]concluding that there is ‘no justification in the text and structure[6] of the Convention ‘to conclude that there is no discretion, or to limit it to such an extent that in cases of irregularity that has caused no material prejudice the court must nevertheless not enforce the award’.[7]

Ultimately, the Full Court agreed with the primary judge that the failure to conduct the arbitration in English was an irregularity, as it was not in accordance with the Agreement. However, the irregularity did not prejudice Hub as it had received notices of the arbitration in English and Hub had elected not to participate.

Nevertheless, the Full Court found that the irregularity with respect to the composition of the arbitral tribunal was ‘fundamental to the structural integrity of the arbitration; it strikes at the very heart of the tribunal's jurisdiction[8] Accordingly, the Full Court would not exercise the discretion to enforce the foreign award.

Separately, the Full Court also considered whether a judgment should be handed down, when the proceeding had settled in principle

Allsop J also considered whether the Court can, or should, proceed to hand down a judgment, notwithstanding that the proceeding had settled in principle immediately prior to judgment.

Allsop J, with whom Middlemount J agreed, found that the judgment ought to be handed down and published as the matter raised important considerations of public policy and public interest supported the judgment being handed down, in light of the important points of law raised, to facilitate the development of the law and the provision of guidance to others. His Honour also considered that the stage at which preparation of judgment had reached was a relevant consideration.

Conclusion

The Full Court's decision highlights Australia's commitment to uphold international arbitration principles, by holding the parties strictly to the terms of the arbitration agreement, and by ensuring that it scrutinises foreign awards and carefully considers any procedural irregularities which may result in a foreign award being defective.[i]


[i] [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.]


[1] Paragraph 39.

[2] Paragraph 82.
[3] Paragraph 85.
[4] Paragraph 82.
[5] Pursuant to which section 8 of the IAA was enacted, following Australia's accession to the New York Convention.
[6] Paragraph 102.
[7] Paragraph 102.
[8] Paragraph 104.