A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Australia continues to be governed by the International Arbitration Act 1974 (Cth) (IAA). There have been no amendments to the IAA in the past year.
Australia entered into the Regional Comprehensive Economic Partnership Agreement (RCEP) with 10 original parties on 1 January 2022 and with the Philippines on 2 June 2023, while the Australia-United Kingdom Free Trade Agreement (A-UKFTA), which was signed on 17 December 2021, came into force on 31 May 2023. The A-UKFTA represents a significant expansion of the commercial and trade relationship between Australia and the United Kingdom, and it is reasonable to anticipate an increase in trade, resulting in further international arbitration activity.
A.2 Institutions, rules and infrastructure
There have been no changes to the Arbitration Rules of the Australian Centre for International Commercial Arbitration (ACICA) this year.
B. CASES
B.1 Arbitration agreements and stay of proceedings
On 16 May 2023, the Supreme Court of New South Wales (NSWSC) stayed court proceedings and referred a matter to arbitration in accordance with Section 8 of the Commercial Arbitration Act 2010(NSW) (NSW CAA) upon the application of a person who was not a party to an underlying arbitration agreement. In King River Digital Assets Opportunities SPC v. Salerno,[1] the defendant (“Salerno”), was the sole director and shareholder of Trigon Trading Pty Ltd (“Trigon“) and the plaintiff, King River Digital Assets Opportunities SPC (“King River“), was a customer of Trigon who sought to recover USD 20.4 million in damages from Salerno in court proceedings on the basis that Trigon had engaged in misleading or deceptive conduct and Salerno was accessorily liable for Trigon’s conduct.
While Salerno was not a party to the underlying contract between Trigon and King River, which contained the relevant arbitration clause, Salerno sought to stay the court proceedings and refer the matter to arbitration, arguing that he was a “party” to the arbitration clause for the purposes of Section 2 of the NSW CAA.
The key legal issues in this case were whether:
- Salerno could seek a stay of proceedings pursuant to Section 8 of the NSW CAA in circumstances where he was not a party to the underlying arbitration agreement.
- The action brought in the proceedings was a matter that was the subject of an arbitration agreement.
- The arbitration agreement was inoperative by reason of abandonment in circumstances where Salerno had taken initial steps in the court proceedings, which included seeking a transfer of proceedings.
The NSWSC observed that a request for referral to arbitration must be made by a “party” pursuant to Section 2 of the NSW CAA,[2] but that “party” not only means a party to an arbitration agreement but includes any person claiming “through or under” a party to the arbitration agreement.[3] While Salerno was not a party to the arbitration agreement, the NSWSC held that he “comfortably” fell within the extended definition of “party” under Section 2 of the NSW CAA, as a person claiming “through or under” Trigon, which was a party to that agreement.[4]
In considering the meaning of “through or under,” the NSWSC considered and followed the 2019 decision of the High Court of Australia (“HCA“) in Rinehart v. Hancock Prospecting Pty Ltd (2019) 267 CLR 514, in which the HCA held that “a person claiming ‘through or under’ may be either a person seeking to enforce a right or seeking to resist enforcement of that right, such that the subject of a claim may be either a cause of action or a ground of defence.”[5] Ultimately, the NSWSC determined that Salerno intended to actively defend the claim made by King River and to argue that he did not have accessorial liability for damage as a result of Trigon’s actions. By actively defending this claim, Salerno was “taking his stand upon a ground which is available to Trigon and stands in the same position vis-à-vis King River as Trigon”[6] and, therefore, may be considered a “party” to the arbitration agreement.
On the issue of whether the action was subject to an arbitration agreement, the NSWSC determined that it could not identify anything that indicated that the court was an “obvious and convenient place” to determine that issue and held that there was no “compelling” reason why the court should decide on it, such that it was an appropriate question for arbitration.[7]
As to whether the arbitration agreement was inoperative by reason of abandonment, the NSWSC determined that Salerno had not abandoned the agreement or waived his statutory right to seek a stay of proceedings by taking initial steps in the proceeding,[8] including where, at the time that Salerno had taken those initial steps, he was not aware of the entitlement to seek a stay in favor of arbitration and, when he learned of this entitlement, he took immediate steps to seek a stay.
B.2 Leave to appeal arbitral awards
In Factory X Pty Ltd v. Gorman Services Pty Ltd,[9] the Supreme Court of Victoria (VSC) considered whether to grant leave to appeal from an arbitrator’s decision based on allegations that the decision was “obviously wrong.” The underlying dispute concerned the time for calculation of share prices under a shareholders’ deed entered into by the parties. The arbitrator had found in favor of Gorman Services Pty Ltd (the respondent), and Factory X Pty Ltd (the applicant) sought to challenge the arbitrator’s determination under Section 34A of the Commercial Arbitration Act 2011 (Vic) (VIC CAA), which allows a court to confirm, vary, remit or set aside an arbitral award.
Citing Westport Insurance Corporation v. Gordian Runoff Ltd,[10] Justice Croft described the standard of “obviously wrong” as “readily identifiable” and as equivalent to “unarguable; a false leap in logic; without reasonable explanation; and a major intellectual aberration.”[11] His Honour held that this (high) threshold for intervention prevented the VSC from overshadowing the original jurisdiction of the arbitrator[12] even if, in the case at hand, the court may have interpreted the shareholders’ deed differently from the arbitrator, since that did not necessarily meet the threshold of “obviously wrong.”
Ultimately, in holding that there were no obvious legal errors in the arbitrator’s determination and that a fair and cost-effective decision had been reached,[13] the VSC decision closely adheres to the underlying purpose of the VIC CAA (the delivery of fair and final resolutions in commercial disputes) and upholds the integrity of arbitration decisions, thus continuing to demonstrate that Australian courts take an arbitration-friendly approach to applications seeking leave to appeal from arbitral awards, particularly in circumstances where a party is merely asserting that a decision was “wrong.”
B.3 Foreign state immunity — Recognition and enforcements
On 12 April 2023, the HCA unanimously dismissed an appeal by the Kingdom of Spain (“Spain“) in a decision concerning foreign state immunity handed down in Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11, after the Full Federal Court of Australia (“Federal Court“)[14] had determined the following:[15]
- That Spain had waived any foreign state immunity from the jurisdiction of Australian courts by Spain’s entry as a contracting party to the ICSID Convention
- To enforce two investment arbitral awards of ICSID in Australia under s 35(4) of the IAA against Spain
Section 9 of the Foreign States Immunities Act 1985 (Cth) (FSIA) provides that, except as provided in the FSIA, a foreign state is immune from the jurisdiction of Australian courts. However, Section 10 of the FSIA sets out provisions regarding submission to the Australian jurisdiction and in Section 10(2) provides as follows:
“A foreign State may submit to the jurisdiction at any time, whether by agreement or otherwise, but a foreign State shall not be taken to have so submitted by reason only that it is a party to an agreement the proper law of which is the law of Australia.”
Spain’s appeal to the HCA primarily concerned two questions:[16]
- First, whether, under Section 10 of the FSIA, Spain’s entry into the ICSID Convention and agreement to Articles 53-55 of that convention constituted a waiver of the foreign state immunity codified in Section 9 of the FSIA, where, relevantly, Article 54(1) of the ICSID Convention provides: “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State”
- Second, whether Spain’s amenability to the Australian courts’ jurisdiction was limited to “bare recognition” of ICSID awards, or to “recognition” and “enforcement” of those awards, and whether the orders made by the Federal Court amounted to “enforcement”
The HCA determined that the waiver in Section 10(2) of the FSIA was “unmistakable.”[17] In doing so, the HCA stated that Section 10(2) aligns with the approach taken in the United States to waiver of immunity, which is that:[18]
- General immunity of a foreign state from jurisdiction does not apply where the state has “waived its immunity either explicitly or by implication.”
- Any construction of words claimed to amount to a waiver needs to be construed narrowly.
- Waivers will rarely be established by implication and will only arise where the waiver is unmistakable.
The HCA then considered Articles 53-55 of the ICSID Convention and found as follows:
- The words “recognition,” “enforcement” and “execution” in some contexts pertaining to international arbitration have been used in “vague, overlapping and interchangeable senses,”[19] and these words have been used separately and with different meanings in Articles 53-55 of the ICSID Convention.
- Given that the ICSID Convention has translations in English, French and Spanish and that each text is authentic and authoritative, the HCA needed to reconcile any inconsistencies in the meaning of these words in each language text of the ICSID Convention.
- There is a clear enough distinction between these words in the English text to draw the following distinctions:
- To “recognize” is expressed to apply to the entirety of an ICSID award and involves a “recognition” of that award as “binding” under the domestic law of the contracting state.[20]
- To “enforce” an ICSID award is to apply to enforce any pecuniary obligations imposed by the award but not to go any further.
- To “execute” is the formal means by which a judgment enforcing the arbitral award is executed and given effect by the contracting state.
- However, on a literal interpretation, the concepts of “enforcement” and “execution” in the French and Spanish texts would have the same meaning, such that enforcement would be synonymous with execution, which would mean that there would be a conflict between the French and Spanish texts on the one hand, and the English text on the other.
- The best approach to dealing with that conflict was to proceed on the basis that there was no real difference in the meaning of the texts that required reconciliation (at least in respect of the key terms “recognition,” “enforcement” and “execution”).[21]
Ultimately, the HCA dismissed Spain’s appeal, finding that Spain, by being subject to binding ICSID arbitral awards and consenting to Articles 53-55 of the ICSID Convention, had waived foreign state immunity from the jurisdiction of Australian courts to recognize and enforce the ICSID awards but not to execute them,[22] affirming the Federal Court’s findings with respect to the distinction between “enforcement” of an award under Article 54(1) of the ICSID Convention and “execution” of an award under Article 54(3) of the convention. The HCA also accepted the Federal Court’s finding that there remains an exception to immunity relating to commercial property.[23]
This is an important decision from the HCA, which again demonstrates that Australian courts will continue to take a supportive approach to arbitration, including investment arbitration.
Similarly, in CCDM Holdings, LLC v. Republic of India (No 3),[24] the Republic of India made an application to the Federal Court seeking to prevent the recognition and enforcement of an arbitral award made under the IAA on the grounds of foreign state immunity.
The key issue in this matter was whether India had foreign state immunity under the FSIA or whether India, as a signatory to the New York Convention, had waived its right to assert foreign state immunity and had submitted to the jurisdiction of the Australian courts.
The background to this matter involved investors incorporated in Mauritius (“Investors“) and their rights under the Agreement between the Government of the Republic of India and the Government of the Republic of Mauritius for the Promotion and Protection of Investments (BIT). The Investors held shares in an Indian company, Devas Multimedia Private Limited (“Devas“). In early 2005, Devas entered into an agreement involving Indian satellites with Antrix Corporation Limited, a state-owned corporation under the administrative control of the Department of Space of India. In 2011, the Indian government’s Cabinet Committee on Security annulled the agreement.
Following the annulment in 2012, the Investors commenced arbitration proceedings against India. The arbitration was administered by the Permanent Court of Arbitration, pursuant to the BIT, and in July 2016, the arbitral tribunal determined that India’s annulment of the agreement was unlawful and issued a quantum award in October 2020. The Investors then commenced proceedings in the Federal Court to and enforce the tribunal’s award in Australia.
India sought to have the Australian proceedings dismissed, arguing that it had foreign state immunity under Australian law, relying on Section 9 of the FSIA, which is reproduced above.
The Federal Court considered, with regard to the recent HCA decision in Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l [25]considered above, whether waiver of foreign state immunity was required to be express or whether it can be implied, as the words of the New York Convention do not make reference to the term “waiver.” The Federal Court had regard to whether a “clear and unmistakable implication by necessity from the words actually used” could be drawn from the words of the New York Convention.[26]
Ultimately, the Federal Court determined that, under Article III of the New York Convention, India and Australia, as contracting parties, had agreed to recognize arbitral awards as binding and were, therefore, required to enforce these awards. Accordingly, India’s claim of foreign state immunity under the FSIA was unsuccessful.
This decision continues the trend of Australian courts’ enforcement of arbitral awards where parties have voluntarily submitted to international arbitration and, therefore, waived their right to claim foreign state immunity, particularly in the context of the recognition and enforcement of arbitral awards.
B.4 The Harman undertaking in arbitration proceedings
In Wright Prospecting Pty Ltd v. Hancock Prospecting Pty Ltd (No 21),[27] the Supreme Court of Western Australia considered the extent to which confidentiality (Harman) obligations for documents obtained during arbitration proceedings can be dispensed or modified in curial court proceedings, in circumstances where not all parties to the court proceedings were party to the arbitration agreement underlying the arbitral proceedings. The Harman undertaking restricts litigants, without leave of the court or other court order, from disclosing or using documents or information produced under compulsion for any collateral purpose other than the purpose for which that production was made, including documents produced pursuant to a direction from an arbitrator.[28]
In this case, Bianca Hope Rinehart (“Bianca“) and John Langley Hancock (“John“) sought leave to use documents that had been produced in related arbitral proceedings for the purposes of their defences in curial court proceedings. Hancock Prospecting Pty Ltd and Hope Downs Iron Ore Pty Ltd (“HPPL Parties“), who were also parties to the arbitration, objected on the basis of the following:[29]
- The documents were subject to the Harman undertaking, as they had been produced under compulsion in the arbitral proceedings.
- For the court to permit the parties to use the documents without a release from the arbitral tribunal or without evidence that such a release had been sought but not obtained would be to intervene in a matter governed by the Commercial Arbitration Act 2012 (WA) (WA CAA) contrary to Section 5 of the WA CAA, which provides: “In matters governed by this Act, no court must intervene except where so provided by this Act.”
- There was no evidence that a release from the arbitral tribunal could not be obtained, and, therefore, the appropriate course would be to approach the arbitral tribunal, and not the court, for a release from the Harman undertaking.
Conversely, Bianca and John argued, inter alia, as follows:[30]
- The Harman undertaking yields to contrary curial orders, and they had been ordered, by consent, to discover the documents that were the subject of the application.
- “The authorities make clear that an application may properly be made to a court for use of documents in a proceeding that have been discovered following an order for discovery, to which the Harman obligation applies without any release having been granted by the court or tribunal to whom the obligation is owed.”
The court observed that none of the cases before it had established a principle that an application to release or to obtain orders to use a document subject to a Harman obligation could not be made to a court that is not the court in which the implied undertaking was given.[31] Therefore, it was not necessary for Bianca and John to obtain a release of the Harman obligation prior to making an application for the use of the documents.
In respect of Section 5 of the WA CAA, the court rejected the HPPL Parties’ argument, holding that the orders contemplated would enable Bianca and John to use documents for the purpose of their , against the plaintiffs who were not parties to the arbitration, and such orders were not of the kind contemplated by the term “intervene” in Section 5 of the WA CAA. Further, the court will not be found to “intervene” where relevant parties have not entered into, and are not bound by, arbitration agreements.[32]
In the end, the court allowed Bianca and John to use the documents subject to the Harman undertaking for the purpose of the court proceedings, specifically to prepare their defences.
This case reiterates that Harman obligations owed to an arbitral tribunal are not absolute, and the courts retain jurisdiction to release parties from these obligations following the exercise of judicial discretion or compulsory court orders.
The authors would like to thank Claudia Hammond, Helena Brunker, Jemima Belger, Joanna Oud and Anton Nguyen for their assistance in the preparation of this chapter.
[1] [2023] NSWSC 510.
[2] [2023] NSWSC 510 at [20].
[3] [2023] NSWSC 510 at [20].
[4] [2023] NSWSC 510 at [21] and [32].
[5] King River Digital Assets Opportunities SPC v. Salerno [2023] NSWSC 510 at [22].
[6] [2023] NSWSC 510 at [32].
[7] [2023] NSWSC 510 at [33].
[8] [2023] NSWSC 510 at [44].
[9] [2023] VSC 247.
[10] (2011) 244 CLR 239.
[11] [2023] VSC 247 at [32] and [34].
[12] [2023] VSC 247 at [15] and [16].
[13] [2023] VSC 247 at [21] and [22].
[14] Eiser Infrastructure Ltd v. Kingdom of Spain [2020] FCA 157; 142 ACSR 616.
[15] Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11 at [8].
[16] [2023] HCA 11 at [7].
[17] [2023] HCA 11 at [29].
[18] [2023] HCA 11 at [29].
[19] [2023] HCA 11 at [42].
[20] [2023] HCA 11 at [43].
[21] [2023] HCA 11 at [62].
[22] [2023] HCA 11 at [8].
[23] [2023] HCA 11 at [9].
[24] [2023] FCA 1266.
[25] [2023] HCA 11.
[26] [2023] FCA 1266 at [41].
[27] Wright Prospecting Pty Ltd v. Hancock Prospecting Pty Ltd (No 21) [2023] WASC 169.
[28] Harman v. Secretary of State for the Home Department [1983] 1 AC 280; Esso Australia Resources v. Plowman (1995) 183 CLR 10, 33, 39 and 46-8; Hearne v. Street [2008] HCA 36 at [96].
[29] [2023] WASC 169 at [63].
[30] [2023] WASC 169 at [65] and [66].
[31] [2023] WASC 169 at [70].
[32] [2023] WASC 169 at [122].
