This excerpt originally appeared in the Baker McKenzie International Arbitration Yearbook 2017-2018. The Yearbook comprises reports on arbitration in key jurisdictions around the globe. You can access the Yearbook here. The country chapter “Australia” can be found here.
In recent years, the Australian courts have given detailed consideration to the interpretation of arbitration agreements for the purpose of staying court proceedings under Section 7 of the IAA and Article 8 of the UNCITRAL Model Law. The approach of the Australian courts was, to some extent, clarified by the Full Court of the Federal Court of Australia in its decision in Rinehart v. Rinehart (No. 3) (Rinehart),[1] in late October 2017. Even though the case related to a domestic arbitration, the issues were addressed in the same manner as in an international arbitration as the relevant legislation is based on the UNCITRAL Model Law.[2]
The Court endorsed the liberal approach to the interpretation of arbitration agreements that had been taken in previous cases, such as Comandate Marine Corp v. Pan Australia Shipping Pty Ltd.[3] The Court recognized that this approach is consistent with the presumptive approach taken by the House of Lords in Fiona Trust & Holding Company v. Privalov.[4]
The Court considered whether to review the arbitration agreement on a prima facie basis, similar to the approach taken by the courts in Singapore, Hong Kong, Canada and other jurisdictions, or to carry out a full review on the basis of a balance of probabilities as taken in recent Australian cases.[5] Whilst the Court acknowledged that the prima facie approach had much to commend it as an approach that gives support to the jurisdiction of the arbitrator, the Court stated that it was “difficult to see how the Court can exercise its power under section 8 without forming a view as to the meaning of the arbitration agreement”.[6] The Court emphasized that an arbitration agreement must be construed, like any other contractual provision, in accordance with the accepted principles of contract interpretation, that is, “at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement”.[7] That interpretation is not to be a narrow semantic interpretation but a liberal interpretation that takes into account common sense and commercial realities.
Interestingly, even though this case involved a dispute between family members, the Court held that it was a commercial dispute that could be referred to commercial arbitration.[8]
The Australian courts have consistently emphasized that an arbitration agreement is to be construed in accordance with the accepted principles of contract interpretation. In Kennedy Miller Mitchell Films Pty Limited v. Warner Bros. Feature Productions Pty Limited,[9] the issue was whether the contract contained an arbitration clause. The parties entered into a letter agreement relating to the direction and production of a film, which stated that the “balance of terms” would be the “WB standard for ‘A’ list directors and producers, subject to good faith negotiations”. When court proceedings were commenced, the defendant applied for a stay arguing that an arbitration clause was incorporated into the letter agreement through the standard terms and/or certificates of employment (“COEs”).
Applying the accepted principles of contract interpretation, the judge determined that an arbitration clause was not incorporated into the letter agreement through the standard terms or the COEs. Although the COEs were related to the letter agreement, these alone were not enough to make a dispute arising out of, or in relation to, the letter agreement also a dispute arising out of, or related to, the certificates. Also, the dispute did not concern any issue arising out of, or related to, the certificates. Hence, a reasonable person in the position of the parties to the letter agreement would not have understood that the COEs, by virtue of their arbitration clause, mandated compulsory arbitration for a dispute about an alleged breach of the separate letter agreement. For these reasons, the application for a stay was refused.
There have been a number of other cases involving stay applications. For example, in Eriez Magnetics Pty Ltd v. Duro Felguera Australia Pty Ltd,[10] a subcontractor and sub-subcontractor sought a stay referring a “pass through claim” to arbitration after a related dispute had been resolved in arbitration between the head contractor and the subcontractor. The Court acknowledged that if it was a pass through claim then there was little point or purpose in an arbitration being held because the sub-subcontractor’s rights “turn critically upon the outcome” of the dispute with the head contractor. A stay was granted.
In another case,[11] the court adopted a broad interpretation to the arbitration agreement and granted a stay in a related dispute even though the applicant was not a party to the arbitration agreement and the claims against the applicant were under the Corporations Act 2001 (Cth).
Trina Solar (US) Inc v. Jasmin Solar Pty Ltd[12] also concerned stay applications under Section 7(2) of the IAA. The dispute arose under a supply contract between Trina and the subsidiary of Jasmin. Jasmin had provided a parent company guarantee. Arbitration had been commenced in New York under the supply contract. Jasmin claimed it should not be a party to the arbitration as it was not party to the arbitration agreement in the supply contract. The arbitral tribunal determined that Jasmin was a party to the arbitration. Jasmin commenced court proceedings in Australia against Trina under the Australian Consumer Law and sought leave to serve outside the jurisdiction. Trina argued that leave should be refused. Trina had not applied for a stay but argued that a stay would inevitably be granted under Section 7(2) of the IAA.
Applying the law of the forum, not the law of the contract, the primary judge had found that Jasmin was not a party to the arbitration agreement. The judge granted leave to serve outside the jurisdiction but was not required to determine whether a stay should be granted. On appeal, the question before the court was whether the exercise of the discretion to grant leave to serve outside the jurisdiction had miscarried and whether such leave should be refused. The court considered the relevant choice of law rules, noting that the law of the forum is to be applied to determine whether there is consensus ad idem and the law of the contract is to be applied to questions of the validity and interpretation of the contract. The court determined that leave to serve outside the jurisdiction should not be refused. The court noted that Trina could still apply for a stay of the proceedings under Section 7(2) of the IAA.
The Rinehart decision has been appealed to the High Court of Australia and special leave has been granted. It remains to be seen whether the High Court will clarify the approach to be taken to stay applications under the IAA and the uniform Commercial Arbitration Acts that apply to domestic arbitrations.
[1] Rinehart v. Rinehart (No. 3) [2017] FCAFC 170.
[2] Domestic arbitration is governed by uniform state legislation, the Commercial Arbitration Act (the “CAA”), based on the UNCITRAL Model Law. Section 8 of the CAA reflects Article 8 of the UNCITRAL Model Law.
[3] [2006] FCAFC 192.
[4] Fiona Trust & Holding Company v. Privalov [2007] UKHL 40.
[5] See, for example, Rinehart v. Rinehart (No. 3) [2016] FCA 539 and Samsung C&T Corporation v. Duro Felguera Australia Pty Ltd [2016] WASC 193. Both cases were reported in last year’s Yearbook.
[6] Rinehart v. Rinehart (No. 3) [2017] FCAFC 170 at [145].
[7] Rinehart v. Rinehart (No. 3) [2017] FCAFC 170 at [146].
[8] Rinehart v. Rinehart (No. 3) [2017] FCAFC 170 at [133]-[139].
[9] [2017] NSWSC 1526.
[10] [2017] WASC 304.
[11] In the matter of Infinite Plus Pty Ltd [2017] NSWSC 470.
[12] 6 [2017] FCAFC 6.
