Enforcement of Chinese arbitral awards in Australia

Out-Law Analysis | 22 Sep 2020 | 3:27 pm | 3 min. read

Recent decisions by the Australian courts enforcing arbitration awards by the China International Economic and Trade Arbitration Commission (CIETAC) reinforce Australia's standing as a pro-arbitration jurisdiction.

Australia's legal profession and judiciary have considerable experience in dealing with international transactions. Parties to international transactions, whether Chinese outbound investors or Australian companies doing business with Chinese enterprises, should carefully consider their arbitration agreements to ensure that their commercial interests are protected and that their rights can be fully exercised.

Lessons for Chinese outbound investors

For many Chinese outbound investors, Australia has long been an attractive investment destination in areas such as energy, mining resources, renewable energy and infrastructure

Contracting parties are free to propose a dispute resolution regime that maximises their interests. For Chinese outbound investors, that may include proposing China as a seat for arbitration with CIETAC as the institution rules, on the basis that they are most familiar with this regime. As both Australia and China are signatories to the New York Convention on the Enforcement and Recognition of Foreign Arbitral Awards (Convention), Chinese arbitral awards can be enforced in Australia.

Australia has a solid record of being a jurisdiction that recognises and enforces international arbitration awards. This makes Australia an attractive jurisdiction for doing business.

In a recent decision, the Supreme Court of New South Wales enforced an award made by CIETAC in China, even though part of the award sought was the equivalent of an order for specific performance in that it required a party to pay a specific amount to acquire a percentage stake in the other party.

In an earlier decision, in 2013, a party sought to enforce an arbitral award made by CIETAC against an Australian company in the Australian Federal Court, even though that Australian company had been voluntarily wound up. In Australia, after the voluntary winding up of a company, no proceedings may be commenced against that company except by leave of the court.

Considerations which resulted in the Federal Court granting leave, and the foreign award ultimately being enforced, included:

  • a finding that there was virtually no additional expense or inconvenience on the Australian company;
  • that the Australian company did not oppose leave being granted;
  • that regard should be given to the purposes of the 1974 International Arbitration Act (Cth) (IAA), which amongst other things is aimed at facilitating international trade and commerce by encouraging the use of arbitration as a method of resolving disputes and by facilitating the recognition and enforcement of arbitral awards.

It is also becoming clear that Australian courts are unlikely to delay the recognition and enforcement of an arbitral award. In 2014, the Full Federal Court dismissed the debtor's argument that the enforcement of a CIETAC award should be stayed. The debtor argued that it had initiated a separate arbitration against the award creditor in China; that this was likely to result in an award in its favour for a sum greater than the award being enforced in Australia; and that the debtor would be entitled to a 'set-off'.

In rejecting those arguments, the court had regard to the IAA and considered that the Australian parliament had intended for there to be proper, efficient and timeous facilitation and recognition of international arbitral awards. Granting a stay that delayed enforcement would be against those objectives.

Lessons for Australian companies doing business with Chinese partners

Australian companies should carefully consider the dispute resolution clause and any arbitration agreement before finalising a contract with a foreign enterprise.

Provisions on matter such as institutional rules, language of the arbitration and seat of the arbitration are important, and deserve critical consideration. Otherwise, Australian companies may find themselves severely disadvantaged if they are required to resolve disputes via arbitration in an unfamiliar jurisdiction, with a different legal system and in a foreign language, or using rules with which they are unfamiliar.

Once the contract is signed, it will be difficult for an Australian company to argue that the arbitration clause is somehow void. In 2017, the Federal Court of Australia enforced an arbitral award despite the Australian company's contention that there was no valid arbitration agreement and that the underlying commercial documents were a "sham" which did not reflect the true relationship between the parties. Ultimately, in the absence of evidence on the law of China, the court found that there was no reasonable prospect of establishing that the arbitration agreement was not valid under Chinese law. The court also found that the Australian company had affirmed the arbitration agreement by participating in the arbitration process including, most significantly, appointing a member of the arbitral tribunal, submitting a 'statement of defence' and submitting counterclaims.

The court enforced the award despite the Australian company's argument that its sole director did not attend the arbitration in China because of his concern of a threat of imprisonment if he travelled to China. The court was not satisfied that the evidence supported that argument.

Additional research by Sarah Chan and Kevin Zhou.