Australian court goes against arbitral award pro-enforcement bias

Out-Law Analysis | 08 Sep 2021 | 9:10 am | 3 min. read

The Full Court of the Federal Court of Australia has ruled that a foreign arbitral award ought not be enforced because the arbitral tribunal was not constituted strictly in accordance with the parties' arbitration agreement.

It is commonly assumed that Australian courts will have pro-enforcement bias when assessing procedural irregularities with arbitral proceedings or awards, and examples of courts refusing to enforce arbitral awards are rare.

The facts of the case

In 2010, an Australian company Hub Street Equipment (Hub) and a Qatari company Energy City Qatar (ECQ) concluded a contract for Hub to supply and install goods in Doha.

ECQ made an advance payment to Hub under the contract and, in 2012, ECQ decided not to continue with the contract and requested repayment of this amount. Hub stated it would get legal advice and confirm its position but instead it retained the money and stopped communicating with ECQ.

In June 2016, ECQ filed a statement of claim with the Plenary Court of First Instance of the State of Qatar. It did so without providing notice to Hub to appoint one member of the arbitral tribunal, as required under the contract. In January 2017, the Qatari Court made orders appointing an arbitral tribunal. The tribunal sent to Hub's address six notices in English about the conduct of the arbitration, however Hub never participated in the arbitration. In August 2017, the tribunal issued an award ordering Hub to pay the value of the advance payment, damages and the fees of the arbitration. The tribunal issued the award in Arabic with an English translation.

Hub challenged the award in the Australian courts. It argued that the judge should have found that the appointment of the tribunal, and the tribunal’s failure to conduct the arbitration in English, were not in accordance with the parties' agreement and that the court should not have recognised the award.

Reasons for non-enforcement

While it has commonly been thought that a party seeking to resist enforcement will be required to discharge a high burden of proof, the Full Court held that the International Arbitration Act (IAA) does not provide that the standard of proof under sections 8(5) and (7) is any higher than the balance of probabilities as ordinarily applied in a civil case.

The notion of the IAA having a pro-enforcement bias is not based on a high standard of proof but rather based on the finite, narrow and specific grounds for non-enforcement. This is in line with the approach internationally.

ECQ relied on the principle of comity, rather than the structure of the common international regime for the recognition and enforcement of arbitral awards. The Full Court emphasised that courts are duty bound to apply the IAA, being a law of Australia, and this cannot be brushed aside in the interests of comity.

Nevertheless, the Full Court stated that choosing not to enforce the award did not detract from the principle of comity, due to the Qatari Court acting on a misapprehension of the true position in appointing the arbitral tribunal.

Section 8(3A) of the IAA provides that the court may only refuse to enforce an arbitral award in certain circumstances, including where the arbitral procedure was not in accordance with the agreement of the parties. Where a ground for non-enforcement exists, the courts have discretion to enforce the arbitral award nonetheless. This is supported by the use of ‘may’ in ss 8(5) and (7) of the IAA, however, currently there is no authoritative statement in Australia as to the nature of this discretion.

The Full Court held that there is no justification in the text and structure of the New York Convention on recognition and enforcement of foreign arbitral awards to justify a broad-ranging or unlimited discretion.  Equally, there is no justification in the text and structure to conclude that there is no discretion, or limited discretion to the extent that the court must not enforce an award in cases of irregularity that cause no material prejudice.

Here, the Full Court emphasised that the composition of the arbitral tribunal was “fundamental to the structural integrity of the arbitration”. For this reason, it declined to exercise its discretion to enforce the award despite the irregularity, finding that the composition of the arbitral tribunal “strikes at the very heart of the tribunal’s jurisdiction”.

The fact that the proceedings were held in Arabic rather than English as agreed by the parties – which is also a potential ground for non-enforcement under the IAA – was irrelevant in this instance, as it did not affect the structural integrity of the arbitration. Hub had received notices of the arbitration in English and it had elected not to participate.

Co-written by Elsie Richardson of Pinsent Masons.