International Arbitration 2020

Last Updated August 18, 2020

Australia

Law and Practice

Authors



Clifford Chance has the largest international arbitration practice in Australia, whether measured by caseload, aggregate quantum in dispute or team size. The award-winning team comprises 21 full-time international arbitration lawyers. The Australian arbitration team's cases span a range of sectors and jurisdictions and it acts on some of the biggest and most high-profile disputes in the Asia-Pacific region. The team's members are also sector experts with specialist knowledge in the industries most often implicated in investor-State disputes, including natural resources, and are skilful negotiators in order to successfully assist in pre-arbitration consultations, and other dispute avoidance processes. The ISDS team includes specialists who are truly at the forefront of practice and theory in this area, being active as both advocates and thought leaders (speakers, teachers and authors).

Arbitration remains the method of choice for the resolution of commercial disputes in the infrastructure, energy and natural resources sectors in Australia, where there is a high rate of foreign participation and cross-border contracting. The key motivating factors for parties opting for international arbitration in Australia continue to be confidentiality and the New York Convention enforcement mechanism.

Speed and efficiency are less critical factors than in other jurisdictions (because the courts in Australia are efficient and reliable), although there is evidence that these factors do inform the choice of arbitration in rapid and repeat-transaction contexts, such as commodities trading. Expertise is also a factor in certain types of contracts, such as gas sales agreements and construction contracts, where the ability to appoint arbitrators with specific technical skills and qualifications is seen as a significant advantage by many businesses.

COVID-19 and International Arbitration

The COVID-19 pandemic has brought new challenges to the conduct of international arbitration proceedings in Australia. Parties must now accommodate the use of virtual hearings across multiple jurisdictions.

Parties who are not willing to accommodate virtual hearings will likely see disruption or delay to the conduct of arbitrations. Parties, however, may (legitimately) be reluctant to agree to virtual hearings on the merits of a claim. This is especially so for complex cases involving many witnesses.

It is anticipated that we might see a change in the types of disputes that are referred to arbitration as a result of the COVID-19 pandemic. As oil and gas projects are suspended, there may be less activity in this sector and an increase in private equity and government-related disputes being referred to arbitration (particularly investor-State arbitration).

Clarification of Standard of Review in Stay Applications

Stays continue to be the most common arbitration-related application that Australian courts are called upon to decide. In recent years, conflicting lines of case law emerged concerning the standard of review of arbitration agreements in the context of stay applications: in some cases, the court has taken a "full review" approach, whereby the existence and scope of the arbitration agreement are determined by the court on the balance of probabilities (similar to the approach in England); in other cases, the court has taken a "prima facie review" approach, whereby so long as the issue in dispute arguably falls within the scope of a prima facie valid arbitration agreement, the court proceedings will be stayed and it will be for the arbitrator(s) to decide the issue of scope in the exercise of Kompetenz-Kompetenz (similar to the approach in Singapore and Hong Kong).

This important issue has now been clarified by the High Court: in Rinehart v Hancock Prospecting [2019] HCA 13. In this case, the High Court endorsed the prima facie review approach to arbitration agreements in the context of stay applications. The High Court also confirmed the liberal approach to interpretation, holding that arbitration clauses are to be construed by reference to the language used by the parties, in light of the surrounding circumstances and the purposes and objects of the legal instrument in which the clause is contained. The contextual approach to the interpretation of arbitration clauses in Rinehart was endorsed in the subsequent case of Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82.

The infrastructure, mining, and oil and gas industries continue to dwarf all other industries in terms of the volume of international arbitration cases they generate in Australia. As a result, the vast majority of international arbitration activity occurs in Western Australia and Queensland – the states with the largest natural resources industries. This is illustrated by the result of a study conducted in 2019 by Francis Burt Chambers (one of the leading barristers' chambers in Western Australia), in conjunction with the ICC and FTI Consulting.

This study found that, in the 2017-18 financial year alone, there were 105 unique arbitration proceedings in or connected to Western Australia (52 of these matters were international arbitration cases, the balance were domestic), with an aggregate value in dispute of approximately AUD22.5 billion. The dominance of the natural resource-exporting states as arbitration markets is likely to continue in the medium term, although there is a steady and increasing volume of international arbitration case-flow in Victoria and New South Wales, covering a broader range of business sectors (including finance, hospitality and technology). There is also likely to be a continuing rise in renewable energy disputes, arising in particular out of the construction of such projects.

Within Australia, the Australian Centre for International Commercial Arbitration (ACICA) is the principal institution for international arbitration. The Australian Disputes Centre (ADC) (headquartered in Sydney) provides world-class dispute resolution facilities in the centre of Sydney's CBD. Combined with ACICA's role as an arbitral institution, both ACICA and ADC offer users of international arbitration a "one-stop shop" for their disputes. The ICC Rules and the UNCITRAL Rules are popular choices for international arbitrations seated in Australia. Sometimes these arbitrations are linked to ACICA but they are also frequently conducted on an ad hoc basis or with a degree of administrative support from an overseas institution such as the ICC Court.

International arbitrations concerning Australian substantive law or projects in Australia are also referred to the Singapore International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAC) and other regional centres. Overall, SIAC and the ICC are probably the most widely chosen arbitral institutions in contracts between Australian businesses and Asian businesses; in contracts concerning major projects located in Australia, the UNCITRAL Rules are selected reasonably often, as they are seen as affording the parties maximum freedom to shape the arbitral procedure to meet the needs of their dispute.

International arbitration in Australia is governed by the International Arbitration Act 1974 (Cth) (IAA). The IAA incorporates almost all of the UNCITRAL Model Law provisions – the Model Law is incorporated into the IAA as Schedule 2 of that Act – save for a number of deviations that are set out in Section 22. Broadly, these provisions deal with party defaults, confidentiality, evidence and security for costs.

While not strictly a deviation, in Australia, the test for bias under the IAA is slightly different to the test that applies under the Model Law. Article 12 of the Model Law allows parties to challenge the appointment of an arbitrator when there are "justifiable doubts" as to the independence and impartiality of that arbitrator. Under Section 18A of the IAA, "justifiable doubts" is taken to be established only when there is a "real danger" of bias on the part of the arbitrator. The threshold for establishing a challenge in Australia is, accordingly, set higher than in other jurisdictions, meaning that bias challenges are (or should be) more difficult to make out in an Australian-seated arbitration than in most other jurisdictions.

Further, each Australian state and territory has enacted its own Commercial Arbitration Act, which govern domestic arbitrations conducted in those states and territories. However, the legislation governing domestic arbitrations is not covered in this chapter.

Since 2015, there have been no major changes to the IAA, although the legislation continues to be updated as and when the need arises. The most recent round of amendments was made in the Civil Law and Justice Legislation Amendment Act 2018 (Cth) (2018 Amendment Act).

Meaning of "Competent Court"

The 2018 Amendment Act amended the IAA to "specify the meaning of 'competent court' for the purpose of the Model Law; clarify procedural requirements for enforcement of an arbitral award; modernise provisions governing certain arbitrators’ powers; and clarify the application of certain confidentiality provisions." In specifying the meaning of "competent court" for the purpose of the Model Law, the 2018 Amendment Act clarifies that "competent courts" are the Supreme Courts of a given state or territory, or, in any case, the Federal Court of Australia, for those articles of the Model Law that do not specify what are "competent courts" (Articles 17H, 27, 35 and 36). This resolves any potential questions of jurisdiction when parties attempt to engage the courts' jurisdiction under those articles.

Clarifying the Scope of Recognising Arbitral Awards

In clarifying the procedural requirements for enforcement of an arbitral award, the 2018 Amendment Act introduces a welcome development that clarifies the scope of the recognition of arbitral awards. Previously, Section 8(1) of the IAA stated that "a foreign award is binding by virtue of this Act for all purposes on the parties to the arbitration agreement in pursuance of which it was made." An issue in enforcement arose when parties who were non-signatories to an arbitration agreement ultimately ended up being parties to an arbitration award, either through consolidation of proceedings, formal joinders of parties or other grounds. The 2018 Amendment Act addressed this by amending Section 8(1) – and Section 8(5)(f) (on one of the grounds for refusing enforcement of an award) – to read "a foreign award is binding by virtue of this Act for all purposes on the parties to the award." This amendment deals with the issue that led the Victorian Court of Appeal to refuse enforcement of the award in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 38 VR 303, discussed below.

Increased Discretion for Tribunals to Award Costs

The 2018 Amendment Act is also notable in that it increases the discretion given to a tribunal in awarding costs in an arbitration. Previously, Section 27 of the IAA contained references to the taxation of costs on a party/party or solicitor/client basis, which, as stated in the Explanatory Memorandum to the 2018 Amendment Act, were "outmoded and inflexible in contrast to current practice in international arbitration." The 2018 Amendment Act made various technical amendments to remove references to taxation and to give tribunals greater discretion in the amounts that they award in costs, including the manner and basis of payment.

Updated Confidentiality Provisions

Finally, the 2018 Amendment Act also updates the confidentiality provisions in the IAA to reflect Australia's signing of the Mauritius Convention, which provides for the application of the UNCITRAL Transparency Rules for certain investor-State arbitrations. The 2018 Amendment Act amends Section 22 of the IAA to clarify that the current "opt-out" regime for the confidentiality of arbitrations conducted in Australia does not apply when the parties to an investor-State arbitration have agreed to the application of the Transparency Rules (which contain a modified confidentiality regime).

As under the New York Convention, Section 3 of the IAA requires arbitration agreements to be in writing to be enforceable, and Sections 7(2) and 8(7) provide, in effect, that the dispute must be capable of settlement by arbitration. Australia has adopted Option 1 of Article 7 of the Model Law. Article 7 of the Model Law provides an expansive definition of the writing requirement for arbitration agreements – in effect, any written medium can satisfy the writing requirement for arbitration agreements. This would include arbitration agreements concluded by emails and even text messages.

An arbitration agreement can be challenged on the basis of the usual categories of invalidity under contract law (such as illegality, fraud, mistake, etc). Arbitration agreements can also be void for lack of certainty or unenforceable on the basis they are pathological. However, Australian courts will generally strive to give effect to arbitration agreements where possible.

Generally speaking, parties enjoy a wide ambit of the types of disputes they may agree to submit to arbitration subject to certain limitations. For example, pre-dispute (ie, before a claim has been made and rejected) arbitration agreements concerning insurance contracts that fall under the scope of the Insurance Contracts Act 1984 (Cth) are "void" pursuant to Section 43 of that Act. Under Section 11 of the Carriage of Goods by Sea Act 1991 (Cth), arbitration agreements concerning certain carriage of goods agreements have no effect if the arbitration agreement provides for arbitration outside Australia.

Whether insolvency matters can be referred to arbitration in Australia is less clear and depends upon the type of insolvency the company is facing. Generally, arbitration may not be commenced against a company that is in liquidation without leave of the court as Section 500(2) of the Corporations Act includes arbitration proceedings (see also Section 471B of the Corporations Act). However, parties commencing an arbitration against a company in voluntary administration will not require leave of the court and will not be automatically stayed after an administrator is appointed per Section 440D of the Corporations Act.

Arbitrability of Australian Consumer Law

Although there was historically some question about whether the misleading or deceptive conduct provisions in the Australian Consumer Law were arbitrable, it is now well settled that they are.

The Australian Consumer Law may potentially have the effect of rendering arbitration agreements – limited to certain consumer contracts – to be "unfair" pursuant to the terms of that legislation and, accordingly, be rendered "void". However, the vast majority of business contracts will not fall within the scope of the unfair terms regime of the Australian Consumer Law.

Australian courts have traditionally been pro-arbitration and this continues to be the case today. Australian courts will ordinarily enforce arbitration agreements (through the grant of a stay of litigation) unless there are very compelling reasons not to do so. When an arbitration agreement is challenged before an Australian court (such as in opposition to an application for a stay of court proceedings), the court will conduct only a prima facie review of the arbitration agreement, rather than a full review (as is the practice in England).

In certain, narrow, instances, courts may refuse to enforce arbitration agreements when the scope of the agreement is narrowly drafted. An example of this is the case of Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82. Another example is the case of Kraft Foods Group Brands LLC v Bega Cheese Limited [2018] FCA 549, in which arbitration proceedings in New York were stayed in favour of court proceedings in Victoria, Australia. Both of these examples, however, turned on very specific facts relevant to those cases.

Australian law recognises the doctrine of separability, under which an arbitration agreement (or an arbitral clause contained in a wider contract) will be considered valid even if the rest of the contract is deemed invalid (for reasons of, say, illegality). The doctrine of separability forms part of Australian arbitration law by virtue of Article 16(1) of the Model Law.

With the exception of arbitral proceedings under the Convention on the Settlement of Investment Disputes (ICSID Convention) (in which nationality provisions apply), there are no limits on the parties' autonomy to select arbitrators, save for the requirement that arbitrators are impartial and independent. Any person may act as an arbitrator and arbitration law in Australia imposes no particular qualification requirements. A person is not to be precluded from acting as an arbitrator solely on the basis of their nationality, unless otherwise agreed by the parties (Article 11(1) of the Model Law).

Equally, parties are free to impose qualification requirements as they see fit. This could be particularly helpful in the context of particular types of contracts, such as construction contracts or reinsurance contracts, where particular expertise of arbitrators may be desirable. However, as usual, care needs to be taken in the drafting of any qualification requirements in an agreement to arbitrate.

When the parties' chosen method for selecting arbitrators fails, the Model Law provides for a default procedure. Article 11 of the Model Law sets out this procedure.

For an arbitration with three arbitrators, the default procedure is that each party appoints one arbitrator, and the two party-appointed arbitrators appoint the third arbitrator. If either party fails to appoint within 30 days of a request from the other party, or if the party-appointed arbitrators cannot agree on the identity of the third arbitrator within 30 days of their appointment, the appointment is to be made upon request of a party by either the court or prescribed "other authority."

For an arbitration with a sole arbitrator, failing agreement between the parties, the court or prescribed "other authority" will appoint the arbitrator at the request of either party.

Under regulation 4 of the International Arbitration Regulations 2011 (Cth), ACICA is the prescribed "other authority" for this purpose.

Multi-Party Arbitrations

Australia does not have any specific legislation dealing with default procedures for arbitrator selection in multi-party arbitrations. If the parties have specified the ACICA Rules to apply to their arbitration, Article 13 provides that multiple parties must act jointly in appointing arbitrators and, when they do not act jointly, ACICA will appoint the tribunal.

Australian courts have the power to intervene in the selection of arbitrators in specified circumstances. As set out above, a default in the parties' procedure for the selection of arbitrators entitles a party to apply to the court to appoint an arbitrator. Further, if an arbitrator's mandate expires or is withdrawn voluntarily or by agreement of the parties, or the arbitrator cannot perform his or her duties by reason of law or fact, including when there are justifiable doubts about the impartiality or independence or qualification of the arbitrator, or otherwise fails to act without undue delay, any party may make a request to the court to decide on the removal of the arbitrator. Substitute arbitrators are appointed according to the same procedure applicable for the arbitrator being replaced.

Article 13 of the Model Law defers to the parties' agreement for the procedure for challenging or removing arbitrators. However, failing any such agreement, Article 13 provides that a party may submit written reasons for their challenge to the tribunal within 15 days of becoming aware of the constitution of the tribunal and unless the arbitrator withdraws, or the other party agrees to the challenge, the tribunal will decide on the challenge. Within 30 days of a decision rejecting the challenge, the challenging party may apply to the court to make a final decision on the challenge.

Under Article 12(1) of the Model Law, an arbitrator has a duty of impartiality and independence and a duty to disclose without delay any circumstances that are likely to raise justifiable doubts about their impartiality, independence or whether they have the qualifications agreed to by the parties. This duty to disclose is ongoing and continues through the term of the arbitrator's appointment. However, the IAA augments the Model Law by prescribing that the test for removal of an arbitrator is whether there is a "real danger" of bias.

As yet, there have been few applications for removal of arbitrators under the IAA (which suggests that the higher threshold for removal under Section 18A of the IAA is having the effect of deterring frivolous challenges, as Parliament intended). Thus, the case law in this area remains sparse. Presently, the leading case is Hui v Esposito Holdings Pty Ltd [2017] FCA 648, where Beach J of the Federal Court removed an arbitrator for bias (and set aside parts of the arbitrator's partial awards) on the basis that the arbitrator's conduct of the proceedings displayed prejudgment of certain issues in dispute. Beach J held that that a "real possibility" of prejudgment is sufficient to constitute a "real danger" of bias for the purposes of Section 18A of the IAA.

Please see discussion in 3.2 Arbitrability.

The Kompetenz-Kompetenz (competence-competence) principle has the force of law by virtue of Australia's adoption of the Model Law. Under Article 16 of the Model Law, an arbitral tribunal is empowered to rule on its own jurisdiction and on any objections to the existence or validity of the arbitration agreement.

In recent years, two competing approaches have developed concerning the standard of review of arbitral jurisdiction (and arbitration agreements) in Australia. The first is the "prima facie review approach". Under this approach, if a court is satisfied that it is arguable that the arbitration agreement covers the dispute in question then a stay of the litigation will be granted and the issue will be for the arbitrator(s) to decide in the exercise of Kompetenz-Kompetenz.

The second approach is the "full review approach". Under this approach, a court will undertake a full merits review as to the existence and scope of the arbitration agreement before determining, on the balance of probabilities, whether to order a stay.

As a result of the High Court's decision in Rinehart v Hancock Prospecting [2019] HCA 13, the prima facie approach is preferred in Australia.

There is no specific jurisprudential guidance on negative rulings of jurisdiction. However, applying the Kompetenz-Kompetenz principle in light of Australian courts' prima facie review approach (ie, following the decision in Hancock Prospecting), the authors consider that Australian courts will be reluctant to review negative rulings on jurisdiction.

Under Article 16(2) of the Model Law, a plea challenging a tribunal's jurisdiction can be raised within the tribunal proceedings no later than the submission of the statement of defence, and a plea that the tribunal has exceeded its jurisdiction is to be brought as soon as the matter alleged to be beyond the tribunal's discretion is raised in the proceedings. Under Article 16(3), a tribunal may rule on such a plea as a preliminary question or in an award on the merits.

Within 30 days of a tribunal ruling on a preliminary question of jurisdiction, any party may request to the court specified in Article 6 to decide the matter. However, in Australia, an application to the court is limited to instances when a tribunal rules that it has jurisdiction (ie, but not when it rules that it lacks jurisdiction). This is in contrast to other jurisdictions, such as Singapore, England and Wales, and France, where the ability to seek court assistance is open in circumstances where the tribunal rules either that it does or does not have jurisdiction.

Section 18 of the IAA directs that the court specified for Article 6 is the Supreme Court of the state or territory of the place (seat) of arbitration or the Federal Court of Australia.

While there is an international trend towards limiting reconsideration of the both factual and legal findings of arbitral tribunals, in Australia, the court has discretion regarding the extent of its review of the tribunal's decision on jurisdiction. As confirmed in the 2018 case of Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd [2018] VSC 221, the appropriate standard of review by a court of an arbitral tribunal’s preliminary ruling on jurisdiction is a de novo review.

Applications for stays of litigation (and enforcement of arbitration agreements) remain the most common form of arbitration-related application heard by Australian courts. Australian courts are very experienced in this area and the case law shows that Australian courts will generally stay court proceedings commenced in breach of an arbitration agreement.

In respect to an international arbitration agreement to which Australia or an Australian state or resident is a party, and proceedings that are capable of determination by arbitration are pending in an Australian court, the other party to the arbitration agreement may apply to the same court for a stay of legal proceedings under Section 7(2) of the IAA.

If proceedings capable of determination by arbitration are pending in a court, the other party to the arbitration agreement may apply to the same court for a stay of proceedings or as much of the proceedings as necessary to have the matter in question referred to arbitration.

In some states, such as Western Australia, Australian courts have ordered indemnity costs against the party that commenced court proceedings in breach of the arbitration agreement; however, not all Australian states agree with this approach.

The New York Convention forms Schedule 1 of the IAA. Article II of the Convention requires that each state recognise an agreement in writing by which the parties submit to the jurisdiction of an arbitration.

Extending the jurisdiction of an arbitral tribunal to a third party or non-signatory to the arbitration agreement would be inconsistent with the national law unless there are grounds for establishing that a non-signatory is the alter ego or agent of a signatory.

The principles of Australian law that govern arbitral jurisdiction over non-signatories do not draw any distinction based on nationality (ie, it is irrelevant whether the third party/non-signatory is a foreign or local person).

An arbitral tribunal in Australia may order interim relief under Article 17 of the Model Law (which forms part of the IAA). Pursuant to Article 17 of the Model Law, a tribunal has wide powers to make an order that a party maintain or restore the status quo pending determination of the dispute, that a party take action to prevent or refrain from action that would cause current or imminent harm or prejudice to the arbitral process, that a party preserve assets out of which a subsequent award may be satisfied, or to preserve evidence.

Article 17A sets out the conditions for the grant of interim measures, which is similar to the test for injunctions under Australian law generally, being that:

  • harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and
  • there is a reasonable possibility that the requesting party will succeed on the merits of the claim.

Since the Model Law does not contain a procedure for the appointment of an emergency arbitrator to decide on an interim measure where a party requires instant relief, prior to the constitution of the tribunal, this has been included in the revised ACICA Rules (effective from 1 January 2016). The revised ACICA Rules now provide for emergency interim measures of protection in Schedule 1 to the ACICA Rules.

An application for an emergency interim measure is to contain details of the nature of the relief sought, the reasons why such relief is required on an emergency basis and the reasons why the party is entitled to such relief (ACICA Rules, Schedule 1, Clause 1.3). The emergency arbitrator has "power to order or award any interim measure of protection on an emergency basis that he or she deems necessary and on such terms as he or she deems appropriate." The emergency arbitrator may also "modify or vacate the emergency interim measure for good cause shown at any time prior to the constitution of the Arbitral Tribunal" (ACICA Rules, Schedule 7, Clauses 3.2 and 3.3).

It is acknowledged under Australian law that, despite the existence of an arbitration agreement or clause, there may be circumstances where urgent relief is required from a court. The Model Law (which forms part of the IAA) expressly acknowledges the concurrent jurisdiction of the courts and arbitral tribunals in relation to interim measures.

Australian courts have the power to issue a wide array of preliminary and interim relief in aid of arbitration, with the scope of available orders being substantively the same as in other common law countries. The available forms of relief include orders directing a party to refrain from action that would cause current or imminent harm or prejudice to the arbitral process, orders to preserve assets out of which a subsequent award may be satisfied (so-called freezing orders) and orders to preserve evidence.

Article 17J of the Model Law provides that "[a] court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts." Thus, an Australian court does have the power to issue interim relief in aid of a foreign-seated arbitration. Such relief is granted from time to time. For example, in 2018, the New South Wales Supreme Court granted a freezing order to Donaco International Limited, in aid of the company's Singapore-seated arbitration against certain Thai parties.

Although judicial assistance is available in this area, Australian law gives arbitral tribunals broad powers to grant interim relief. Non-urgent applications for relief will not "from any policy perspective" require intervention from the court and should be addressed during the course of arbitration.

The IAA does not include any emergency arbitrator mechanism. If parties wish to have access to an emergency arbitrator in Australia, they will need to select arbitration rules that provide for this option, such as the ACICA Rules or the ICC Rules. The ACICA Rules relating to emergency interim measures make it clear that they are intended to have an alternative operation to recourse to the courts for interim relief. ACICA Rules, Schedule 1, Clause 7.1 states that: "[t]he power of the Emergency Arbitrator under this Schedule 1 shall not prejudice a party’s right to apply to any competent court or other judicial authority for emergency interim measures. If any such application or any order for such measures is made after the referral of an application for emergency interim measures of protection to an Emergency Arbitrator, the applicant shall promptly notify the Emergency Arbitrator, all other parties and ACICA in writing."

However, there may be circumstances where it is preferable to apply to a court instead of an emergency arbitrator (or the arbitral tribunal), such as if an order affecting third parties is required.

As to enforcement, Article 17H of the Model Law expressly provides that "[a]n interim measure issued by an arbitral tribunal shall be recognized as binding and […] enforced upon application to the competent court, irrespective of the country in which it was issued."

An arbitral tribunal in Australia may order security for costs under Article 17E of the Model Law. There is also specific provision in the Model Law (Article 17H) that allows state courts to order security if the arbitral tribunal has not already made a determination with respect to security or it is deemed necessary to protect the rights of third parties.

Aside from the Model Law and the IAA, ACICA publishes Arbitration Rules and Expedited Arbitration Rules that can be incorporated in any contract. The current version of the ACICA Rules came into effect on 1 January 2016 following a review and consultation process. These Rules supersede the 2011 and 2005 editions of the ACICA Rules. If the parties have specifically agreed to the application of an earlier edition of the ACICA Rules, ACICA will administer the arbitration under those rules. Parties may also agree to the application of the UNCITRAL Arbitration Rules and designate ACICA as the administering body.

Article 2.1 of the ACICA Rules provides that: "[w]here parties agree in writing that disputes shall be referred to arbitration under the rules of or by ACICA, then such disputes shall be resolved in accordance with these Rules, subject to such modification as the parties may agree in writing." In such circumstances, the ACICA Rules will govern the arbitration, except that where any of the ACICA Rules are in conflict with a provision of the law applicable to the arbitration from which the parties cannot derogate, that provision shall prevail.

The ACICA Rules make it clear that they apply in addition to the Model Law, as clarified in Article 2.3, which states that "[b]y selecting these Rules the parties do not intend to exclude the operation of the UNCITRAL Model Law on International Commercial Arbitration."

There are no additional procedural steps specified in the IAA that are not specified in the Model Law. Division 3 of the IAA contains additional provisions to the Model Law, but these do not relate to procedural steps. The provisions provide for parties to obtain subpoenas from a court, and to apply to court for orders where a party has failed to assist the tribunal in various ways (eg, failure to appear as a witness). Division 3 also contains provisions on disclosure of confidential information (Sections 23C-23E) and on consolidation of arbitral proceedings (Section 24).

The parties to an arbitration agreement that falls under the IAA are free to agree on the powers and duties of an arbitral tribunal subject to the duties prescribed in the IAA and the general law.

General Duties

The IAA vests an arbitrator with a duty of impartiality and independence, and a duty to disclose without delay any circumstances that are likely to raise doubts about their impartiality, independence or whether they have the qualifications agreed to by the parties (Model Law, Article 12(1)). The arbitral tribunal and each individual arbitrator have a duty to state the reasons upon which their award is based unless otherwise agreed by the parties (Model Law, Article 31). Arbitrators are also obliged to treat parties equally and give equal opportunity to present their case (Model Law, Article 18).

Powers of Arbitral Institutions

In addition to the Model Law, Section 24 of the IAA grants an arbitral tribunal with the power to consolidate proceedings where a common question of law or fact arises, the rights to relief claimed arise with respect to the same transaction (or series of transactions), or for some other reason specified in the application, where it is desirable that a consolidation order be made.

Tribunals are granted broad powers to award interest, both on the period prior to the issue of an award (Article 25) and on the non-payment of an amount due under an award. Article 25 of the IAA allows a tribunal to include interest "at such reasonable rate as the tribunal determines on the whole or any part of the money" from the period between the date on which the cause of action arose and the date on which the award is made. The IAA provides the tribunal with power to order that interest is payable, including compound interest, if an amount ordered to be paid under an award is not paid on or before the due date. The IAA also provides tribunals with discretionary power to award costs, including the fees and expenses of the arbitrator(s).

As discussed under 6 Preliminary and Interim Relief, a tribunal is granted power to make preliminary orders and interim measures in accordance with Article 17 of the Model Law.

Beyond the requirement that a legal practitioner representing a party before an arbitral tribunal must be a duly qualified legal practitioner from any legal jurisdiction of that party's choice (Section 29(2) IAA), there are no other qualification requirements. Legal practitioners in Australia must abide by the applicable professional conduct rules and obligations, including with respect to dealing with conflicts of interest, maintaining client confidentiality and their fundamental duties to the court and the administration of justice.

In Australia, the general approach to collection and submission of evidence has tended to follow that of an adjudicated litigation process, with a distinct pleadings stage followed by a discovery, submission of witness evidence, expert witness evidence and finally a hearing (with cross-examination). However, as noted above, there has recently been a marked shift away from litigation-style practice and towards the adoption of a "memorial" system of case presentation. Evidence is being taken earlier and presented in a more collaborative fashion (especially expert evidence), and arbitrators are taking a more inquisitorial approach (particularly in large, complex cases).

Ultimately, as is the case in all Model Law jurisdictions, Australian law gives the parties considerable freedom (and the arbitral tribunal considerable discretion) to shape the procedure by which evidence is taken, exchanged and presented.

Under Article 19 of the Model Law, the arbitral tribunal has the power to determine the admissibility, relevance, materiality and weight of any evidence. Thus, the rules of evidence are for the tribunal to determine and apply, subject to the mandatory rules of procedural fairness and any specific rules agreed by the parties (ad hoc or through the adoption of arbitration rules that contain specific provisions on evidence).

For proceedings administered by ACICA, the ACICA Rules contain provisions relating to evidence that apply in addition to the Model Law. In particular, clause 31.1 provides that an arbitral tribunal "shall have regard to, but is not bound to apply, the International Bar Association Rules on the Taking of Evidence in International Arbitration in the version current at the commencement of the arbitration." More broadly, in the authors' experience, the IBA Rules on the Taking of Evidence in International Arbitration are commonly applied as a guide for parties and the arbitral tribunal in relation to international arbitration proceedings seated in Australia.

Judicial assistance may be sought with respect to evidence (see section below).

Arbitral tribunals themselves have limited powers of compulsion under the IAA and Model Law to require parties to produce documentary or other evidence.

In accordance with the Model Law, the arbitral tribunal or a party, with the tribunal's permission, may request assistance in taking evidence from the appropriate court and that court may execute the request according to its rules (Article 27 of the Model Law). Sections 23 and 23A of the IAA provide parties with the ability to apply to a court to obtain subpoenas or other orders, but only with the permission of the arbitral tribunal.

The decision in UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd & Ors [2018] VSC 316 shows the Australian courts' willingness to issue subpoenas in aid of international arbitration seated in Australia. However, the Australian courts have also refused to issue such relief in aid of foreign-seated arbitrations, as seen in Samsung C&T Corporation, Re Samsung C&T Corporation [2017] FCA 1169.

Importantly, in addition to the powers under the Model Law and IAA relating to court assistance, Section 23B of the IAA provides that if a person defaults in failing to attend for examination or to produce a document ordered by a court, refuses to comply with other orders of the court, or fails to comply with a requirement of the arbitral tribunal, the arbitral tribunal may continue with the proceeding, and make an award on the evidence before it.

The position regarding the confidentiality of arbitral proceedings has been the subject of debate in Australia in recent years. However, much of this debate was resolved through the introduction of amendments in 2015 to the IAA. These amendments, notably the addition of Sections 23C–23G, have brought Australian arbitration legislation more into line with the case law in other major common law jurisdictions such as England and Wales, and Singapore. Most notably, the 2015 amendments essentially prescribe that, with limited exceptions, the default setting for international arbitrations seated in Australia is that they are confidential (for those arbitrations commenced after the amendments came into force). Nevertheless, there are differences in approach depending as to what part of the arbitral process is being considered and there are exceptions. These are described below.

The basic protection for confidential information in relation to international arbitrations seated in Australia arises under Section 23C of the IAA, which provides that "the parties to arbitral proceedings commenced in reliance on an arbitration agreement must not disclose confidential information in relation to the arbitral proceedings," unless one of the exceptions listed in the Act applies.

Defining Confidential Information

Confidential information is defined broadly and includes:

  • the statement of claim, statement of defence and all other pleadings, submissions, statements, or other information supplied to the arbitral tribunal by the parties;
  • any evidence, whether documentary or otherwise, supplied to the arbitral tribunal and any notes made by the arbitral tribunal of oral evidence or submissions given before the arbitral tribunal;
  • transcripts of oral evidence or submissions given before the arbitral tribunal; and
  • any rulings and awards made by the arbitral tribunal.

The exceptional circumstances allowing for the disclosure of confidential information are that the disclosure is:

  • consented to by all parties;
  • made to a party's professional or other adviser;
  • necessary to ensure that a party to the arbitral proceedings has a full opportunity to present the party’s case (and the disclosure is no more than reasonable for that purpose);
  • necessary for the establishment or protection of a party's legal rights in relation to a third party (and the disclosure is no more than reasonable for that purpose);
  • necessary for the purpose of enforcing an arbitral award (and the disclosure is no more than reasonable for that purpose);
  • required by the IAA or the Model Law;
  • in accordance with an order made or a subpoena issued by a court; and
  • required by a competent regulatory body, and the person making the disclosure gives written details of the disclosure, including an explanation of reasons for the disclosure, to the parties and the tribunal.

The IAA also allows, in certain circumstances, for the tribunal to order disclosure of confidential information and for a court to allow or prohibit disclosure.

Arbitration hearings are not expressly covered by the "confidential information" provisions of the IAA; however, the High Court of Australia in Esso v Plowman (1995) 183 CLR 10 observed that historically the "agreement to arbitrate gave rise to an arbitration which was private in the sense that strangers were not entitled to attend the hearing." Additionally, Article 22.1 of the ACICA Rules provides that all arbitration hearings shall take place in private.

Finally, as noted above, the 2018 Amendment Act introduced a special rule for investor-State dispute settlement cases: the 2018 Amendment Act amended Section 22 of the IAA to clarify that the current "opt-out" regime for the confidentiality of arbitrations conducted in Australia does not apply when the parties to an investor-State arbitration have agreed to the application of the Transparency Rules (which contain a modified confidentiality regime).

The form of an arbitral award is prescribed by Article 31 of the Model Law, which requires that an award be made in writing and signed by the arbitrator, or arbitrators. Signature by a majority of members is insufficient.

There must be reasons stated for an award unless the parties have otherwise agreed that no reasons are necessary to be given or the award is to record an agreed settlement. Further, the Model Law does not contain any time limit that must be abided by for an award; the applicable rules may also be silent on this point. If parties wish to include a timeline for an award, they must do this either in their arbitration agreement or otherwise agree a time within which the tribunal is required to deliver an award. It will then be up to the tribunal as to whether it can adhere to the stated time and to raise this with the parties if it considers more time is required. In this regard, different arbitral rules and institutions have different provisions. For example, the ACICA Rules do not make any provision for the timing of the award.

There are no specified limits on the types of remedies that an arbitral tribunal may award. However, punitive damages for breach of contract are not generally available under Australian law; it is unclear whether an arbitral tribunal or court would enforce an arbitral award providing for such punitive damages and there are apparently no reported cases where this issue has been tried. If such an award is permitted under the governing law of the contract, it would militate in favour of enforcing the award. However, given public policy considerations that the award would not otherwise be generally enforced, the court would be likely to weigh the arguments carefully.

In relation to specific performance, declarations and other equitable remedies, there is no obvious reason why an Australian court would not enforce an award granting such remedies (to the extent they are within the scope of Australian law). In this context it should be noted that the power of the court to enforce an award of specific performance is expressly granted in Australia's local (state or territory) arbitration acts.

In general, in Australia, costs will be awarded to the prevailing party. Where an arbitral award orders payment of money, the general practice regarding interest and legal costs is that it will award interest on that sum from the date on which the cause of action arises to the date of the award. The unsuccessful party is generally ordered to pay the legal costs of the successful party. Ultimately, the arbitral tribunal has discretion as to whether interest will be awarded and at what rate. These matters are the subject of Sections 25, 26, and 27 of the IAA.

There are very limited grounds available for setting aside an award in Australia, which are set out in Article 34 of the Model Law (incorporated into Australian law via Section 16 of the IAA). Broadly, these grounds allow for an award to be set aside in the following circumstances:

  • incapacity of party when entering into the arbitration agreement;
  • legal invalidity of the arbitration agreement;
  • the party making the application was not given proper notice of the appointment of the arbitrator or the arbitral proceedings;
  • a party was unable to present its case;
  • the award deals with matters beyond the scope of the reference to arbitration;
  • the arbitral tribunal was not constituted in accordance with the arbitration agreement or the law of the seat of the arbitration;
  • the arbitration procedure was not in accordance with the arbitration agreement or the law of the seat of the arbitration;
  • the subject matter of the dispute is not legally capable of settlement by arbitration; or
  • the award is in conflict with public policy.

The last of the grounds above – the public policy ground – is also addressed by Section 19 of the IAA, which provides that, for the avoidance of doubt, an award (or interim measure) will be contrary to the public policy of Australia if it was induced or affected by fraud or corruption, or a breach of the rules of natural justice occurred in connection with the award (or interim measure).

Pursuant to Section 33 of the IAA, ICSID awards are not subject to any appeal/annulment, except as provided for in the ICSID Convention.

Australian courts have generally taken a pro-arbitration stance in refusing to set aside arbitral awards unless there are compelling reasons. Usually, there must be demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness. Challenges will not be successful merely by reference to a defect in reasoning.

Another important principle recognised in Australian annulment jurisprudence is that, where a procedural error or imbalance arises from a party's own conduct, that party will not be able to use that procedural defect to later set aside the award.

Australian courts recognise party autonomy in international arbitration and support the ability of parties to agree such dispute resolution mechanisms as they wish. On the other hand, the principle of finality in relation to an arbitral award is equally fundamental. In the absence of any test case on this issue, if asked to consider this issue, it is most likely that the Australian courts would scrutinise the wording of the arbitration agreement carefully. Any lack of clarity in the wording of an arbitration agreement regarding the availability of appeal would, on balance, probably defeat any such challenge.

In relation to the review of a final (merits) award, in principle, unless it is obvious that what has occurred is contrary to public policy or the award was made in breach of natural justice, Australian courts will normally take the position that the arbitral tribunal's findings of fact and law should be upheld. The standard approach to review is, therefore, deferential.

In relation to breach of natural justice, the prevailing judicial view is that the award should not be set aside unless there exists real unfairness or real practical injustice in the conduct of the arbitration or issuance of the award.

Australia acceded to the New York Convention in March 1975 (without making any reservations). In the same year, Australia also signed the ICSID Convention (without making any reservations), although it did not enter into force in Australia until 1991. Australia is not party to the Hague Convention on Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters.

Australian courts have considerable experience hearing and determining applications for the enforcement of foreign arbitral awards, particularly awards made in Asian jurisdictions such as Singapore and Hong Kong.

Foreign arbitral awards are enforceable in Australia through Section 8(3) of the IAA, which provides that they are to be treated as if they were a Federal Court judgment. In order to enforce an award, Section 9 of the IAA also provides that the enforcing party must produce (i) "the duly authenticated original award or a duly certified copy" and (ii) "the original arbitration agreement under which the award purports to have been made or a duly certified copy."

Parties seeking to enforce an arbitral award in Australia should file the Federal Court Request for Enforcement form in accordance with the Federal Court of Australia Act 1976 (Cth) and the Federal Court Rules 2011 (Cth).

Under Section 8(8) of the IAA, the court may adjourn an enforcement proceeding if the award is the subject of a set-aside proceeding at the seat. In doing so, the court may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. Consistent with Article V(1)(e) of the New York Convention (which forms part of the IAA), an Australian court has discretion to enforce an award that has been set aside at the seat of arbitration.

When enforcement of an arbitral award is sought in an Australian court against a foreign State, sovereign immunity may be raised by the debtor State at the execution stage. Section 30 of the Foreign States Immunities Act 1985 (Cth) (FSIA) provides that "the property of a foreign State is not subject to any process of order (whether interim or final) of the courts of Australia for the satisfaction or enforcement of a judgment, order or arbitration award […]".

Australia subscribes to the restrictive doctrine of sovereign immunity – this is reflected in Section 32 of the FSIA, which provides that commercial property will generally not be covered by sovereign immunity. Further, Australian law recognises that sovereign immunity may be waived and when it has been, the waiver may not be withdrawn except in accordance with the agreement under which the waiver was given (FSIA, Section 31(3)).

The Federal Court of Australia's enforcement of two ICSID awards in Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157 reinforces the pro-arbitration approach Australian courts adopt.

The grounds for resisting enforcement of an arbitral award are set out in Sections 8(5) and 8(7) of the IAA and include:

  • incapacity of party when entering into the arbitration agreement;
  • legal invalidity of the arbitration agreement;
  • the party making the application was not given proper notice of the appointment of the arbitrator or the arbitral proceedings;
  • a party was unable to present its case;
  • the award deals with matters beyond the scope of the reference to arbitration;
  • the arbitral tribunal was not constituted in accordance with the arbitration agreement or the law of the seat of the arbitration;
  • the arbitration procedure was not in accordance with the arbitration agreement or the law of the seat of the arbitration;
  • the award has not yet become binding on the parties or has been suspended by a competent court of the country under which law the award was made;
  • the subject matter of the dispute subject to the award is not capable of settlement by arbitration under the laws in force in the state or territory in which the court is sitting; or
  • to enforce the award would be contrary to public policy.

The general approach of the Australian courts to enforcement is, to the extent the words used in the IAA allow, a narrow interpretation may be applied to the grounds for resisting enforcement. However, an award creditor must first establish:

  • there is a foreign award;
  • the foreign award was made pursuant to an arbitration agreement; and
  • the foreign award was made against a person who was a party to that arbitration agreement.

Once the award creditor establishes these facts, the onus then shifts to the award debtor to establish its grounds for non-enforcement. To establish one of the grounds listed in Section 8(5) of the IAA, the party resisting enforcement must prove any facts constituting the defence (including, where applicable, the content of foreign law) on the balance of probabilities. There is, however, a heavy onus on an award debtor making out these defences.

Non-enforcement because of public policy has also been the subject of Australian judicial discourse. For example, in the case of Sauber Motorsport AG v Giedo Van Der Garde BV [2015] VSCA 37, the fact that a non-party's rights would be affected by enforcement of an award does not mean that enforcement contravenes public policy. The public policy ground was also considered in the case of Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd [2013] FACFC 109. In that case, the applicant claimed that it had not been given a reasonable opportunity to present its case (despite having consented to an award to be issued against it in the event it defaulted on its payment obligations under a settlement agreement – it then defaulted). The court held that the award was enforceable on the basis that the arbitrators and the courts of the seat considered a reasonable opportunity had been given. The fact that a foreign court had already given a decision supporting the award was given significant weight.

While Section 24 of the IAA expressly permits consolidation of arbitral proceedings, there is no express recognition of class action arbitrations in the IAA, nor are there any cases of class action arbitrations in Australia. In theory, Australian courts may, in accordance with Section 24 of the IAA and with the consent of the parties, recognise class action arbitrations in the future.

As discussed in 3.2 Arbitrability, the same restrictions to that to the types of disputes that may be submitted to arbitration would apply to class action arbitrations.

Counsel and arbitrators in Australia are subject to professional rules applicable in their respective jurisdictions (now nearly uniform across all states and territories). Broadly speaking, these professional rules outline the fundamental duties of practitioners (eg, to uphold the administration of justice and to act in the best interests of clients) and set out ethical standards for practitioners engaging in advocacy and litigation. A foreign lawyer acting as counsel at a hearing in Australia is required to apply the ethical standards set out in Australian law, and there is therefore no "international arbitration exception".

At present, third-party litigation funders in Australia are not required to be licensed and are not subject to any formal regulation. However, in May 2020 new regulations were announced that, once enacted, will require litigation funders to be licensed.

Aside from formal regulation, a funded claim may be objected to on the basis that it is an abuse of process (although the threshold for establishing an abuse of process is high). Courts also have the ability to address any conduct of a litigation funder that is inimical to the due administration of justice. The courts have effectively exercised their supervisory jurisdiction to stay proceedings in cases involving unconventional funding arrangements.

The prohibition on contingency fee arrangements that Australian lawyers are subject to does not apply to litigation funders. However, funders may be exposed to liability if they engage in conduct that is unconscionable or misleading or deceptive.

Section 24 of the IAA allows a party to an arbitral proceeding, before an arbitral tribunal, to apply for an order that the proceedings be consolidated on the following grounds:

  • the proceedings relate to a common question of law;
  • the rights to relief arise out of the same transaction; or
  • for some other reason consolidation is desirable.

Please see discussion in 5.7 Third Parties.

Clifford Chance

1 O'Connell Street
Sydney
NSW, 2000

+61 289 22 8000

Sam.luttrell@cliffordchance.com www.cliffordchance.com
Author Business Card

Trends and Developments


Authors



Clifford Chance has the largest international arbitration practice in Australia, whether measured by caseload, aggregate quantum in dispute or team size. The award-winning team comprises 21 full-time international arbitration lawyers. The Australian arbitration team's cases span a range of sectors and jurisdictions and it acts on some of the biggest and most high-profile disputes in the Asia-Pacific region. The team's members are also sector experts with specialist knowledge in the industries most often implicated in investor-State disputes, including natural resources, and are skilful negotiators in order to successfully assist in pre-arbitration consultations, and other dispute avoidance processes. The ISDS team includes specialists who are truly at the forefront of practice and theory in this area, being active as both advocates and thought leaders (speakers, teachers and authors).

Digitalisation or Arbitration/COVID

Although the practice of international arbitration has, in recent years, become much more "digitalised", through increased use of e-discovery, e-hearings and virtual hearings, the current COVID-19 pandemic has clearly accelerated the uptake of digital/virtual arbitration formats around the world. This has been no different in Australia. The restrictions on movement that have been imposed as a result of the pandemic have forced parties, counsel and arbitrators to abandon traditional ways of working. As the pandemic forces national borders closed, international arbitration has been especially affected.

Necessity being the mother of invention, the pandemic has caused the arbitration community to innovate. The flexibility afforded by arbitration, coupled with the proliferation of sophisticated technologies, has allowed users of arbitration (counsel and tribunals) to adapt to parties' evolving needs.

In the last few months, the arbitration community has adopted novel ways to minimise the need for in-person contact. Leading arbitration institutions have adopted greater use of technology, providing guidelines and tools to facilitate virtual and paperless hearings to mitigate delay. For example, the ICC (among other institutions) has published a guideline on how parties and tribunals can mitigate the impact of the pandemic, including by adopting virtual hearings. The SCC launched an online secure digital platform to provide parties and tribunals a secure and efficient way of communicating and filing case materials. Such initiatives are welcome developments; although the use of the various technologies are to be considered on a case-by-case basis. Greater collaboration among arbitral institutions is also being seen, as demonstrated by the Joint Statement on Arbitration and COVID-19, which has been issued by 13 prominent international arbitral institutions.

Though they have been effective to a significant extent, there are limits to what these innovations can achieve. The effect of the COVID-19 pandemic on procedural timetables has sometimes been severe. Concerns that virtual hearing formats may result in reduced quality of justice, particularly in cases involving witness testimony on complex or serious issues, have led to the deferral and cancellation of hearings in many cases.

The ICC recognises that public health restrictions and safety concerns to limit the spread of COVID-19 have increased the likelihood of delay. In response, the ICC emphasises that parties, counsel and tribunals have shared obligations to consider procedural measures and the use of case management tools to mitigate any delays caused by the COVID-19 pandemic. For example, tribunals should consult parties early about the organisation and timing of the initial case management conference to avoid delay. The ICC has recommended other measures, such as identifying whether disputes can be resolved on the basis of documents only and without evidentiary hearing, reconsidering site visits and inspections and opting for presentations and reports, and using audioconference or videoconference for hearings when possible to increase efficiency.

The ICC highlights that parties, counsel and tribunals have the appropriate procedural tools at their disposal to manage delays. Other arbitral institutions have also implemented novel measures to mitigate delay. For example, the International Centre for Settlement of International Disputes (ICSID) has made electronic filing its default procedure and the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) have partnered with technology specialists to offer integrated virtual hearing services. Accordingly, despite the challenges posed to the procedural timetable by COVID-19 and anticipated arbitration blowouts by parties, the steps by arbitral institutions to provide measures and guidance indicate a strong desire by tribunals to mitigate delay and maintain business as usual.

Third-party service providers are playing a significant role in this process of procedural innovation. The Australian legal market is served by a number of reputable vendors providing e-discovery, e-hearing and virtual hearing services, covering the entire life cycle of a dispute. It is now theoretically possible for parties not to file a single piece of paper or conduct a single in-person hearing. Use of these services, particularly by Australian parties and counsel, is becoming de rigueur.

Force Majeure, Frustration and Termination for Convenience

As the pandemic began to unfold, many predicted the rise of disputes concerning force majeure or frustration (or their local law equivalents). Though there has been a significant uptick in advisory mandates concerning these issues, this has yet to develop into a high volume of large-scale force majeure and frustration cases. There are likely a number of reasons for this.

For example, it may be due to the global scale of COVID-19 as an event and the potential for a contractual chain reaction to occur if force majeure is called. Many large public companies, especially those with international operations underpinned by complex contractual chains, have thus far been reluctant to invoke force majeure. The consequences of a party that validly declares force majeure of course depend on the terms of the contract but generally the party may be granted temporary relief from performing its obligations, or, in some cases, may be discharged from its obligations entirely. If a public company calls force majeure on a global event such as COVID-19, that will often be announced to the market and thereby become known to other parties with whom that company has contracts. Thus, major international businesses run the risk that if they call force majeure under one contract, they may face force majeure claims from their counterparties under other contracts.

Another reason may be the risks that come with wrongful declaration. A party that is not entitled to claim force majeure but does so may be exposed to a counterclaim for damages or repudiatory breach of contract. Associated reputational risks concerning what may be seen as unacceptably aggressive conduct in the face of the pandemic are also under consideration.

Yet another reason may be that commercial parties are still grappling with and seeking to understand the effects of the pandemic on any particular commercial relationship or their business more broadly. For now, some parties are prepared to adopt a "wait and see" approach. This may yet still be the calm before the storm.

The Use and Regulation of Third-Party Funders

There is an increasing interest in third-party funding in international arbitration. The third-party funding market continues to grow and diversify and there is now a visible group of funders that specifically target international arbitration cases.

Funders continue to be attracted to the natural resources sector in Australia. This is for three main reasons. First, the natural resources sector is diverse, with many single-asset mining and energy companies (often at exploration stage) who may lack the cash flow needed to cover the costs of a long court case or arbitration, even though they may well have a good claim. Second, mining and energy companies are established users of arbitration (rather than litigation) to resolve disputes, especially cross-border disputes, and funders tend to prefer arbitration rather than litigation (especially in countries where the courts are not reliable). Third, the sums involved in natural resources cases are often large and therefore present an opportunity for funders to earn stakes in significant damages awards.

However, funders are also looking at various other sections, including in technology, private equity, insurance, aviation and other cross-border M&A and trade-related disputes.

In Australia, the regulation of third-party funders is a hot topic. The Australian Corporations Act 2001 (Cth) provides third-party funders with an exemption from the requirement to hold an Australian financial services licence on the basis that they are not are not categorised as a managed investment scheme. Proposed amendments to the Corporations Regulations 2001 (Cth) will remove this exemption, originally implemented over a decade ago.

The removal of this exemption paves the way for the introduction of a suite of significant measures for the regulation of third-party funders in Australia. This includes the obligation for funders to do all things necessary to ensure that the financial services covered by their licences are provided efficiently, honestly and fairly. Further, funders will be required to maintain a suitable level of competence to provide financial services and to ensure that their representatives are sufficiently trained and are skilled to provide those financial services. Funders will need to maintain sufficient organisational resources to provide financial services and have in place arrangements for the management of conflicts of interest. Lastly, and most importantly, all funders will need to be licensed to be able to operate.

The proposed changes are yet to be reflected in the Regulations but are expected to take effect from August 2020. The Parliamentary Joint Committee on Corporations and Financial Services is currently conducting an inquiry into the government's changes and a report from the Committee is due 7 December 2020. It is unclear how the new regulatory regime will apply to offshore funders. However, the Australian corporate regulator has recognised that the regulatory regimes in Denmark, France, Sweden and Canada are sufficiently equivalent to Australia's. Foreign financial services providers will be able to apply for a foreign Australian financial services licence.

The authors do not expect that these regulations will slow the growth of the third-party funding industry or reduce the use of funders in arbitration. Quite the contrary: many funders welcome regulation, as it consolidates their market.

Increasing Sector Diversity in Arbitration

Historically, the infrastructure, mining, and oil and gas industries were the main sources of arbitration cases in Australia. Now, partly due to the COVID-19 pandemic, the authors expect to see the diversification of arbitration across new sectors.

While it is likely the resources sector will (directly or indirectly) continue to account for the majority of large-scale arbitration cases in Australia, the financial impact of COVID-19 will likely lead to a change in the type of disputes being arbitrated by the resources industry. For example, the financial pressure and uncertainty brought about by the current economic downturn will inevitably put commercial relationships under stress, particularly joint ventures. The authors therefore expect to see an increase in arbitrations between joint venture participants.

With the disruption of supply chains and operational issues flowing from COVID, it is anticipated that the transport, agriculture and renewable energy sectors will see an increased volume of disputes submitted to arbitration. The aviation sector, which has been so drastically impacted by the pandemic, will also produce large arbitration cases in the coming years. Additionally, the telecommunications and technology sectors, as they continue to expand globally and in Australia, will likely also yield an increased caseload.

On a final note, there is an increasing demand for arbitration in Australia generally. The caseload of Australia's leading arbitral institution, the Australian Centre for International Commercial Arbitration (ACICA), is steadily increasing and shows that foreign parties are now more accepting of Australia as the seat of arbitration. Ninety per cent of arbitrations administered by ACICA in the last two years involved at least one foreign party and more than a third of cases involved two foreign parties with no other connection to Australia (other than an Australian city being the seat).

Investor-State Arbitration

Australian businesses – particularly mining companies – continue to make use of the investor-State dispute settlement (ISDS) provisions in Australia's free trade agreements (FTAs) and bilateral investment treaties (BITs).

Examples of current or recently concluded ISDS cases brought under Australian treaties include the Australian mining company Indiana Resources v Tanzania (under the UK-Tanzania BIT), Prairie Mining Limited v Poland (under the Australia-Poland BIT), Kingsgate Consolidated Ltd v Kingdom of Thailand (under the Australia-Thailand FTA) and Tantalum International Ltd v Arab Republic of Egypt (under the Australia-Egypt BIT). Another notable claim was that of Tethyan Copper Company against Pakistan (under the Australia-Pakistan BIT), the high-value award in which is currently the subject of enforcement proceedings in the Federal Court of Australia (commenced in October 2019).

Although many in the political class remain somewhat wary of ISDS as a result of the tobacco plain packaging claim by Philip Morris (which Australia defeated in 2015), and there is still distrust of ISDS in some segments of the public, the Australian government is generally supportive of ISDS. This is illustrated by the fact that Australia agreed to ISDS in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force on 30 December 2018. The Australian government has, however, taken commendable steps to increase public confidence in ISDS. These steps include Australia's signing (in July 2017) of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention), which provides for a regime that incorporates the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (Transparency Rules) in certain investor-State arbitrations.

As to enforcement, in the last year the authors have seen the enforcement of two investor-State awards against a foreign State (Spain) in Australia. These enforcement actions were seemingly motivated by the investors seeking to avoid the effects of the European Achmea decision, which effectively renders intra-EU investor-State arbitration redundant. The Federal Court of Australia in the case of Infrastructure Services Luxembourg S.A.R.L. v Kingdom of Spain [2019] FCA 1220 and Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157 were such examples. In delivering his judgment in Eiser Infrastructure, Justice Steward noted that the foreign State, Spain, as a Contracting Party to the ECT and the ICSID Convention, had submitted itself to arbitration and, in doing so, "Spain also submitted to the jurisdiction of the designated courts (including the Federal Court) for the purposes of enforcement (as opposed to execution) of those awards." While one of the investor-State awards has since been annulled, these court decisions are an encouraging sign that Australia will be a reliable jurisdiction for foreign investors to enforce their arbitral awards against foreign States. These decisions were also notable because they were examples of foreign investors with no connection to Australia seeking to enforce their awards in Australian courts.

The Practice of International Arbitration

Until recently, it was common for arbitral proceedings in Australia to be conducted in a manner similar to domestic litigation, with court-style pleadings and evidence presented in an adversarial fashion, often by barristers (rather than solicitors). Parties and counsel to arbitrations in Australia are increasingly adopting the memorial approach, which, broadly speaking, requires a party to file its submissions, lay evidence and expert evidence simultaneously. The primary advantage offered by adopting memorials is that it is more efficient in forcing parties to narrow the issues in dispute. Additionally, by requiring parties to place "all their cards on the table", there is less opportunity for either party to be ambushed by new claims or arguments at a later stage of the proceedings.

The memorial approach is favourable when the dispute largely turns on factual issues (ie, the majority of disputes) and it is beneficial in allowing opposing parties and the tribunal significant time to consider and digest the facts of the case at hand. Arguably, the approach is more advantageous in that it facilitates and encourages early settlement, since all the issues and evidence (and the strengths and weaknesses of a case) are revealed at an earlier stage.

Possible disadvantages of the memorial approach include the significant "front-loading" of costs, as well as the logistical challenges of co-ordinating the simultaneous filing of pleadings, witness and expert evidence. The memorial approach, if not managed effectively (and when restraint is not exercised by the parties), may result in parties and tribunals being provided with large masses of poorly organised and potentially irrelevant material.

Finally, there has also been an increase in solicitor advocacy, whereby law firms are doing more advocacy in-house and are briefing less to the commercial Bar. This is possibly attributable to the increasing exposure and expertise of Australian lawyers in international arbitration.

These positive changes in the way arbitration is practised result from a number of forces converging, including the adoption of the UNCITRAL Model Law on International Commercial Arbitration at the State level (such that it applies to both domestic and international arbitration), the increased involvement of foreign parties and foreign law firms in Australian-seated arbitral proceedings, the efforts of institutions such as ACICA and the ICC to promote international practices and procedures, and the general increase in exposure to international disputes that Australian firms have enjoyed in recent years as a result of the growth of the market for international arbitration services in the Asia-Pacific.

Clifford Chance

1 O'Connell Street
Sydney
NSW, 2000

+61 289 22 8000

Sam.luttrell@cliffordchance.com www.cliffordchance.com
Author Business Card

Law and Practice

Authors



Clifford Chance has the largest international arbitration practice in Australia, whether measured by caseload, aggregate quantum in dispute or team size. The award-winning team comprises 21 full-time international arbitration lawyers. The Australian arbitration team's cases span a range of sectors and jurisdictions and it acts on some of the biggest and most high-profile disputes in the Asia-Pacific region. The team's members are also sector experts with specialist knowledge in the industries most often implicated in investor-State disputes, including natural resources, and are skilful negotiators in order to successfully assist in pre-arbitration consultations, and other dispute avoidance processes. The ISDS team includes specialists who are truly at the forefront of practice and theory in this area, being active as both advocates and thought leaders (speakers, teachers and authors).

Trends and Development

Authors



Clifford Chance has the largest international arbitration practice in Australia, whether measured by caseload, aggregate quantum in dispute or team size. The award-winning team comprises 21 full-time international arbitration lawyers. The Australian arbitration team's cases span a range of sectors and jurisdictions and it acts on some of the biggest and most high-profile disputes in the Asia-Pacific region. The team's members are also sector experts with specialist knowledge in the industries most often implicated in investor-State disputes, including natural resources, and are skilful negotiators in order to successfully assist in pre-arbitration consultations, and other dispute avoidance processes. The ISDS team includes specialists who are truly at the forefront of practice and theory in this area, being active as both advocates and thought leaders (speakers, teachers and authors).

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