Introduction

Australia has continued to mature in recent years as a forum for international arbitration. There has been steady growth in Australia as a seat and venue for arbitrations with an international element.

Australian courts, including the High Court of Australia, continue to be supportive and protective of arbitration as a consent-based forum for dispute resolution and generally act with great restraint, intervening only minimally and where necessary to protect the integrity of the arbitral process. The general trend in more recent times is for most proceedings relating to international arbitration, in the first instance, to be heard and determined by the specialist arbitration judges in the Federal Court of Australia.

The decisions of Australian courts on arbitration-related issues are frequently noted and generally respected by the global arbitration community. For example, the approach of the Federal Court of Australia on whether a matter is capable of settlement by arbitration was considered and expressly adopted in the recent twin decisions of the Privy Council in FamilyMart China Holding v Ting Chuan [2023] UKPC 33 and the Supreme Court in Republic of Mozambique v Credit Suisse International [2023] UKSC 32. Additionally, former eminent Australian judges sit on the Singapore International Commercial Court and Hong Kong Court of Final Appeal and continue to deliver arbitration-related judgments of international significance in that capacity. Likewise, Australian courts frequently refer to and draw upon the decisions of courts in other leading arbitral jurisdictions, as noted below in the two recent significant decisions of the High Court of Australia.

This article summarises some recent trends and developments in Australia’s arbitration landscape. The first section addresses two significant recent decisions of the High Court of Australia concerning international commercial arbitration and the UNCITRAL Model Law, the second addresses recent and forthcoming court decisions regarding investor state arbitration, and the third addresses possible areas for reform and trends.

International Commercial Arbitration

August 2024 saw two major judgments of the High Court of Australia. Each decision has significant implications for arbitration in Australia and both decisions contain several important statements of principle of wider international significance.

Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24

The background to this dispute was that legislatures in Australia had passed proportionate liability statutes that limited a respondent wrongdoer’s liability to an amount which “the Court” considers just having regard to the extent of the wrongdoer’s responsibility for the loss. Those statutes also enabled the respondent wrongdoer to join a third-party, alleged concurrent wrongdoer to the proceedings such that each of the alleged wrongdoers are bound by the determination made as to proportionate liability in a single proceeding. The question was whether proportionate liability statutes applied to arbitration, notwithstanding that third-party wrongdoers could not be forced to join an arbitration, with the consequence that a plaintiff would need to separately institute proceedings in a court against other wrongdoers to achieve full recovery of its loss.

The High Court held by a five to two majority that proportionate liability statutes were capable of applying in arbitration through the parties’ choice of substantive law under Article 28 of the Model Law. However, the majority Justices took subtly divergent pathways to that conclusion, reflecting the difficulty and complexity of the issue.

Ultimately, the majority largely analysed the question through the analytical framework of party autonomy embodied in the Model Law as advanced by the Australian Centre for International Commercial Arbitration (ACICA) in its written submissions intervening as amicus curiae.

First, the critical question of proper characterisation of the relevant statute served as the starting point for analysis, since it would only be caught by any choice of substantive law under Article 28 if it were substantive. It was common ground that the parties had made a choice of the substantive law of South Australia under Article 28, whereas they had not chosen any rules of procedure under Article 19. Effectively, a plurality (Gageler CJ at [58]-[64], and Jagot and Beech-Jones JJ at [364]) considered that that meant that the substantive aspects of the proportionate liability statutes applied as a matter of party choice (subject only to considerations of arbitrability and public policy), whereas the procedural aspects did not apply since there had been no such choice.

Second, on the premise that the proportionate liability laws were relevantly substantive, the question arose as to how the statutory language could be “moulded” to enable it to be applied to an arbitration, in circumstances where it was expressed to apply to a “Court”. The plurality concluded that the central provisions of the proportionate liability statutes were capable of being applied as substantive laws of South Australia in a sufficiently similar way to a court. They took the view that the joinder provisions of the proportionate liability statutes were not critical to the operation of the central operative provisions dealing with the rights and liabilities of the parties. Gordon and Gleeson JJ (at [99]-[100]) concluded that whether a substantive law is capable of application depends on whether it can be adapted to the arbitral context without altering its effect, such that what is applied can still be described as the substantive law chosen by the parties. They also did not regard the provisions directed to joinder as integral to the operation of the proportionate liability laws.

Third, the choice of curial law (lex arbitri) dictates the extent to which notions of arbitrability and public policy affected the jurisdictional capacity of the tribunal to apply the substantive law otherwise required by Article 28. To that extent, notions of arbitrability and public policy are logically anterior to the question of applicable substantive law and do not simply arise at the level of recognition or enforcement. Rather, because the tribunal could only apply the substantive law if it had jurisdiction to do so, it is incumbent on the tribunal (as part of its duty to render an enforceable award within jurisdiction) to have regard to these considerations: Gageler CJ at [45]-[48], Gordon and Gleeson JJ at [139]-[140], Jagot and Beech-Jones JJ at [290], [337]-[339].

The implications of this are potentially far-reaching. There may now be a need for tribunals in arbitrations seated in Australia to raise issues of arbitrability and public policy proactively to ensure they are properly addressed in the award.

Fourth, neither arbitrability nor public policy deprived the arbitral tribunal of jurisdiction to apply the substantive law as contained in the proportionate liability statutes.

As to arbitrability, Gageler CJ at [70]-[71], Gordon and Gleeson JJ at [106] and [140] and Jagot and Beech-Jones JJ at [341] held that the subject matter of the dispute was arbitrable. Gageler CJ said that the question of non-arbitrability reduces to a single question of statutory interpretation: does anything in the statutory text or structure or subject matter or purpose evince a legislative intention to exclude arbitration of the statutory rights or liabilities in issue in the arbitration? The proportionate liability laws do not evince any such legislative intention as they are concerned with the determination of substantive rights between private parties.

As to public policy, only Gageler CJ at [74]-[75] and Jagot and Beech-Jones JJ at [342]-[346] and [356]ff considered the question, holding that applying the statute in an arbitration did not contravene public policy. Gageler CJ recognised that the modern trend is to construe public policy narrowly and it is informed by the statutory objectives to encourage the use of arbitration in international trade and commerce and to facilitate the fair and impartial resolution of commercial disputes without undue delay and expense.

There were strong dissents from Edelman and Steward JJ. Edelman J (at [149]) concluded that the substantive aspects of the proportionate liability laws were inextricably intertwined with its procedural aspects (which could not be applied in arbitrations) such that the parties should be taken to have excluded those laws from their implied choice of South Australian substantive law. Steward J held that by severing the joinder provisions of the proportionate liability laws their essential meaning was altered leaving a substantially different law. His Honour found that absent express party choice to apply such a modified regime, the proportionate liability laws could not be applied to arbitration in that “distorted” and incomplete way.

Implications

Many of the above points were not fully argued before the High Court or in the Court of Appeal below. However, it is clear that the High Court’s decision has far wider implications beyond the immediate outcome, which was that proportionate liability statutes applied in arbitration where those statutes form part of the system of substantive law expressly or impliedly chosen by the parties to resolve their arbitration under Article 28.

More than anything, the various judgments also emphasise the need to carefully distinguish between, and properly ascertain, the substantive, procedural and curial law, since the choice of each had distinct consequences: see esp Gageler CJ at [19]-[29], Jagot and Beech-Jones JJ at [311], Edelman J at [158]. That is so even in a case, such as this, where all connecting factors appeared to point to the same jurisdiction.

However, having identified the need to distinguish properly between the substantive, procedural and curial law, the Court differed both as to how that was to be done, and additionally as to the role and content of inferences and implications that may be drawn from the choice of one or the other.

Gageler CJ at [19]-[29] considered that a choice of substantive law (under Article 28) or a choice of curial law did not dictate the choice of the rules of procedure (under Article 19). Jagot and Beech-Jones JJ at [372]-[381] did not consider that the choice of arbitration through an arbitration agreement and the choice of substantive law involved any contractual intention to modify the substantive law that had been chosen, or any contractual intention that the dispute should only be resolved in the courts. In so doing, each of Gageler CJ at [53] and Jagot and Beech-Jones JJ at [381] rejected the proposition that the Fiona Trust presumption (that rational actors will be presumed to have intended that all disputes arising between them will be decided by the same court or tribunal) could operate to support an inference of mutual contractual intention to exclude the proportionate liability law.

Edelman J disagreed strongly, seeing at [151] significance in focusing on the scope of the implied choice of substantive law, the absence of any choice of procedural rules by the parties, and in the legislative background to the development of the proportionate liability statutes. In so holding, his Honour developed the Fiona Trust presumption to conclude at [213]-[223] that the parties were not to be taken as incorporating substantive and procedural rules of law in a manner which would have required a combination of arbitration and litigation to resolve the dispute finally.

Steward J considered at [274] that where the parties had only impliedly chosen the applicable substantive law, the principle of party autonomy was “largely irrelevant”.

Importantly, the reasoning of all the Justices appears to accept that the parties can expressly opt-out of the operation of the proportionate liability statutes in their selection of the content of the substantive law to be applied under Article 28 of the Model Law (although where the substantive law itself excludes the possibility of such an opt-out – eg, Section 7(3) of the Civil Liability Act 2003 (Qld) – did not arise and was not addressed). In that sense, as Edelman J noted (at [153]), the conclusion of the majority only represents a default rule. Consistently with party autonomy, parties that wish to exclude proportionate liability laws from their arbitration should (subject to the above) be able to do so by an express exclusion in their arbitration agreement. This will naturally require a good degree of forward planning when drafting the underlying transaction documents and arbitration agreement alongside the choice of a particular Australian jurisdiction as a seat.

CBI Constructors v Chevron Australia [2024] HCA 28

In this decision, the High Court considered the implications of bifurcating an arbitration and the extent of a supervisory court’s role in reviewing a tribunal’s finding that it was not functus officio, in the context of the ground for setting aside an arbitral award in Article 34(2)(a)(iii) of the Model Law.

A tribunal had bifurcated the arbitration generally between liability and quantum. It had issued a first award on certain liability issues. When the claimants sought to agitate additional liability issues, the respondent objected on the basis that the claimants were precluded by preclusive estoppel from agitating those issues, and that the tribunal was functus officio in respect of liability issues more generally. The tribunal overruled that objection, holding in a second award that the claimants were not so precluded and that the tribunal was not functus officio.

The respondent applied to set aside the second award on the basis that the tribunal’s finding that it was not functus officio was a jurisdictional question which the Court could and indeed must reconsider de novo.

The majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) at [26] upheld the principle that an arbitrator was functus officio in relation to the issues to which an interim award relates, relying upon Fidelitas Shipping [1966] 1 QB 630 at 644 and its subsequent positive international treatment including in leading commentaries, and that this served to inform the meaning of Article 34(2) of the Model Law. Their Honours continued at [34], [38] and [39] that the question of whether a tribunal was functus officio was one that went to an arbitral tribunal’s jurisdiction, and that that was so even if the tribunal had made findings within jurisdiction which also underpinned its findings as to its jurisdiction. That is because “[w]hether an arbitral tribunal has exhausted its authority precedes, and is separate from, any preclusion by way of an estoppel”: at [36]. In reviewing the question of jurisdiction, the majority emphasised the need to identify the jurisdictional question narrowly so as not to stray into the merits: at [41]. Nonetheless, the standard of review to be applied on a jurisdictional question is de novo, rather than substantial or absolute deference: at [43]. That is so even though the basis on which the jurisdictional question was to be decided was one of interpretation of the tribunal’s own procedural orders: at [47]. (On this, the dissentients were in agreement: at [92]).

In dissent, Jagot and Beech-Jones JJ held that there was nothing in the Model Law or in the parties’ agreement which justified curial intervention in relation to an interim award. As to the former, their Honours held at [74] that the tribunal’s mandate had not been exhausted under Article 32 of the Model Law, since there was no final award, and that the reasoning in Fidelitas Shipping did not survive the Model Law: at [80]-[81]. As to the latter, and in reliance upon the Hong Kong Court of Final Appeal in C v D (2023) 26 HKCFAR 216 at [47] per Ribeiro PJ, the parties were not lightly to be taken as having agreed to curial intervention. Moreover, there was no dispute that the substantive dispute fell within the tribunal’s jurisdiction; instead, what was contended was that there was a procedural jurisdictional limitation on the submission to jurisdiction. Here, no such intention could be imputed to the parties, since by their arbitration agreement they had opted to submit their disputes “exclusively and finally” to “binding” arbitration: at [84]-[88].

Implications

This decision will have great practical significance for the common practice of bifurcating hearings. Tribunals would be well advised to expressly reserve their jurisdiction to consider matters addressed in interim awards. They should in any event draft bifurcation orders with great care, since it is now clear that they are liable to be parsed through closely by a supervisory court with a view to deciding, on a de novo basis, whether the tribunal’s authority has relevantly been exhausted such that it is functus officio.

Investment Arbitration

Investment arbitrations – Australian investors as claimants

Australian investors continue to be important users of investment arbitration as claimants. There are at least four pending investment arbitrations brought by Australian claimants, all in the mining industry. And in late July 2024, Indo Gold Pty Ltd, a subsidiary of Panthera Resources plc, announced that it had issued a notice of arbitration against India under the Australia-India Bilateral Investment Treaty.

One important recent decision is that of Nachingwea UK Limited v Tanzania, International Centre for Settlement of Investment Disputes (ICSID) Case No. ARB/20/38, brought by UK subsidiaries of Indiana Resources, an Australian miner. Here, Tanzania had sought annulment of a USD77 million ICSID award. The claimants then sought summary dismissal under ICSID Rule 41(5), on the basis that the grounds for annulment were “manifestly without legal merit”. In February 2024, an ICSID ad hoc annulment committee ordered summary dismissal of most grounds for annulment advanced, permitting only 2 out of 21 such grounds to proceed.

Investment arbitrations – Australia as respondent

Australia is currently facing a number of investment arbitration claims, all filed or threatened to be filed by Zeph Investment Pte Ltd, a Singaporean company affiliated with the Australian businessman and former politician, Clive Palmer. Together, the claims by Zeph are in the hundreds of billions of dollars.

All remain in their preliminary stages. The most progressed claim is that under the ASEAN-Australia-New Zealand Free Trade Agreement, in relation to the impact of extraordinary legislation passed by Western Australia targeting Zeph’s Australian subsidiary, Mineralogy Pty Ltd. One consequence of that legislation was to obliterate Mineralogy’s rights to pursue claims against Western Australia, and to declare two existing arbitral awards (and the arbitration agreements underlying them) invalid and of no effect. It also entitled Western Australia to claim very wide-ranging indemnities to the extent proceedings were ever brought by Zeph or Mineralogy in any way challenging the legislation destroying their adjudicated entitlements under various mining leases. In November 2023, the Geneva-seated UNCITRAL tribunal declined to issue interim measures, largely in light of written undertakings given by the Attorney-General of Western Australia. It also declined to issue interim measures to restrain criminal proceedings, recognising the State’s sovereign prerogatives.

Two other claims by Zeph in respect of investments in Queensland have yet to lead to any publicly available decisions or awards on any substantive issues, but have been reported widely in the press.

It remains to be seen whether Australia’s attitude to the desirability of the investment treaty regime will be affected by these disputes. To date, however, with results like those in White Industries v India and Nachingwea UK Limited v Tanzania, investment arbitration could be viewed as having generated a net financial benefit to Australia.

Court judgments

Recent investment arbitration-related decisions from the courts have focused on the aftermath of the landmark judgment Kingdom of Spain v Infrastructure Services Luxembourg sàrl (2023) 275 CLR 292. In that case, the High Court held that Spain’s entry into the ICSID Convention (and in particular Arts 53–55 thereof) constituted a waiver of foreign State immunity from the jurisdiction of the Australian courts to recognise and enforce (but not to execute) a binding ICSID arbitral award.

Three sets of proceedings – each ongoing – are worth noting.

First, the investors in Infrastructure Services have since sought to execute that award, and relevantly obtained orders ex parte requiring Spanish consular officers in Australia to attend court to be examined for the purpose of identifying what assets Spain has in Australia against which execution might be pursued. The Federal Court held that ordering Spain to furnish security for costs did not infringe against Spain’s consular immunity or privilege: [2024] FCA 236. That decision is on appeal but has yet to be heard. Notably, Australia’s Foreign States Immunities Act 1985 (Cth) does not have the prohibition against foreign State defendants being subject to orders for injunctive relief found in Section 13(2) of the UK’s State Immunity Act 1978 and its analogues.

Second, investors from EU member states have continued to pursue recognition and enforcement against Spain. In May 2024, the Federal Court of Australia heard oral argument in proceedings against Spain to recognise and enforce the awards in 9Ren, NextEra, RReef Infrastructure and Watkins. Spain has sought to resist enforcement including by application of the conflicts rule of primacy, or alternatively on the basis that the otherwise binding nature of the award under Article 53 of the ICSID Convention has been modified inter se as a matter of customary international law or by operation of Article 30 of the Vienna Convention on the Law of Treaties. Additionally, two of these proceedings raise the question of whether a purported assignee of an ICSID award has standing to seek recognition and enforcement. Parallel recognition and enforcement proceedings are underway in other jurisdictions; the interaction of these judgments as between the various enforcement jurisdictions will be very interesting.

Third, in CCDM Holdings v India (No 3) [2023] FCA 1266, the Federal Court of Australia held that India had waived its immunity by agreement and thereby submitted to the jurisdiction of the Australian courts by ratifying the New York Convention. The Court held that by doing so, India had submitted to jurisdiction “by way of clear and unmistakeable necessary implication”, since the obligation of all contracting states to recognise arbitral awards as binding and to enforce them was a promise made by each contracting state to every other contracting state, such that to oppose recognition and enforcement on State immunity grounds would be inconsistent with that promise. In so doing, the Court took the High Court’s judgment in Kingdom of Spain one step further and applied it to the New York Convention.

Additionally, the Court held that at the stage of considering waiver of immunity, it was not necessary to determine whether the arbitration agreement was valid or applicable; instead, all that was required was that there appeared to be an arbitration agreement on its face. The validity or applicability of that arbitration agreement was instead to be dealt with at the later stage of considering whether the relevant ground for resisting recognition and enforcement under the New York Convention was made out.

The appeal in respect of this judgment was heard by the Full Federal Court in May 2024, and judgment remains reserved.

Reform and Trends

Several trends can be observed and are expected to continue. First, the number of international arbitrations in Australia will continue to increase in the next decade. The Australian arbitration legal community is much larger and more sophisticated than ten years ago. The continuing return of many Australian arbitration practitioners from arbitration hubs such as London, New York and Hong Kong will accelerate this trend. The desirability, in appropriate cases, of arbitration is now much better understood by the Australian legal disputes community than 10-20 years ago.

It is also expected that the relative composition of arbitrations in Australia will change. Historically, arbitrations in Australia have been heavily concentrated in construction. This will remain a large proportion of arbitration disputes but disputes in other areas, including arising from renewables and climate change issues, are likely to increase. This coincides with the Australian government’s ambition to make Australia a renewables global powerhouse.

Second, Australia will continue to be a reliable jurisdiction for judgment creditors to seek recognition and enforcement of foreign arbitral awards, and related relief, and to test difficult legal issues in this area. The accumulation of jurisprudence and expertise in this area will continue to develop and grow. Notably, this vein of decisions by Australian courts has been considered abroad – eg, in Infrastructure Services v Spain [2023] EWHC 1226 (Comm) and Border Timbers v Zimbabwe [2024] EWHC 58 (Comm), both of which have been appealed to the Court of Appeal.

Third, the pool of arbitrators available from Australia for arbitrations in Australia and in the Asia-Pacific will continue to expand in size, quality and diversity. The demand for reputable Australian arbitrators in major commercial arbitrations across the Asia-Pacific will continue to increase.

In terms of reform, if Australia is to continue to mature as a viable arbitration venue it would benefit from regular legislative reform, as in other leading arbitral jurisdictions. There are several areas where legislative reform would be desirable to reflect international best practice. Australia might also benefit from having all international arbitral issues arising under the Model Law (even if only on appeal) dealt with by a single intermediate commercial court with specialism in international matters. As arbitration further matures and grows in Australia, Australia would also likely benefit from a state-of-the-art arbitral centre supported by the Commonwealth and the State governments, the business and legal community and the Australian Centre for International Commercial Arbitration.