Australia: Federal Court considers jurisdiction to enforce international arbitral awards made in Australia

Introduction

In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2012] FCA 21, reasons handed down by a single judge of the Federal Court of Australia have confirmed that the Federal Court has jurisdiction to enforce international arbitral awards made in Australia. Parliament had neglected to confer any court with such an express power in the 2010 amendments to the International Arbitration Act 1974 (Cth).

The issues raised in the reasons are of significance for Australia's desirability as a seat for international commercial arbitration. The issues affect whether:

• International arbitral awards not covered by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) (eg, awards made in Australia) can be enforced by the Federal Court; and
• Whether the Federal Court has power to enforce interim measures of protection issued by tribunals in accordance with the 2006 amendments to the UNCITRAL Model Law on International Commercial Arbitration (Model Law).

The case does not affect the enforcement in Australia of foreign awards in accordance with the New York Convention. It also does not answer the question whether State or Territory Supreme Courts have the power to enforce non-New York Convention international awards.

Norton Rose Australia acts for TCL Air Conditioner (Zhongshan) Co Ltd in relation to these proceedings.

The primary issue

Australia's arbitration regime recognises 4 types of commercial arbitration awards:

1. Domestic awards, being non-international arbitration awards made in Australia to which the Model Law does not apply;
2. Foreign awards, being international arbitration awards made outside Australia to which the New York Convention applies;
3. Non-New York Convention foreign awards, being international arbitration awards made outside Australia to which the New York Convention does not apply; and
4. Non-foreign awards, being international arbitration awards made in Australia.

State and Territory legislation governs the enforcement of domestic awards, and s 8 of the International Arbitration Act 1974 (Cth) governs the enforcement of New York Convention foreign awards.

For non-New York Convention foreign awards and non-foreign awards, however, there is no express conferral of jurisdiction on an Australian court to enforce these awards. The question before the Federal Court, therefore, was whether art 35 of the Model Law, given force of law by s 16 of the International Arbitration Act 1974 (Cth), was capable of conferring the Federal Court with such jurisdiction.

The facts

The proceedings arise out of a dispute under a distribution agreement entered into between TCL Air Conditioner, based in China, and Castel Electronics, based in Australia. The dispute was referred to arbitration in Melbourne, where Castel Electronics was awarded a sum in damages.

Castel Electronics sought enforcement of the arbitral award in the Federal Court of Australia. TCL Air Conditioner opposed enforcement on several grounds, including that the Federal Court had no jurisdiction to enforce the award. TCL Air Conditioner has also brought separate proceedings seeking to set aside the award under art 34 of the Model Law.

The reasons of Murphy J

On 23 January 2012, Murphy J handed down his reasons for finding that the Federal Court has jurisdiction to enforce an international arbitration award made in Australia. His Honour is yet to deal with the other issues raised in the proceedings.

The requirement to enforce an international arbitration award (wherever made) is found in art 35 of the Model Law, with art 36 providing a narrow set of circumstances when enforcement can be refused.

Articles 35 and 36 of the Model Law, however, refer only to a "competent court" being required to enforce awards and do not provide the manner in which an award is to be enforced. This can be contrasted with the position of foreign awards, where s 8 of the International Arbitration Act 1974 (Cth) expressly confers jurisdiction to enforce on the Federal Court and State and Territory Supreme Courts, and requires those courts to enforce awards as if the award were an order of the relevant court.

Justice Murphy reasoned that s 39B(1A)(c) of the Judiciary Act 1903 (Cth), read with the Model Law and s 54 of the Federal Court of Australia Act 1976 (Cth) all combined to confer the Federal Court with jurisdiction to enforce awards in accordance with arts 35 and 36 as follows:

• Section 39B(1A)(c) of the Judiciary Act 1903 (Cth) confers the Federal Court with jurisdiction in any matter arising under a law of the Commonwealth Parliament;
• The enforcement of non-foreign awards was a "matter" and it arises under a law of the Commonwealth Parliament as the International Arbitration Act 1974 (Cth) (as construed by his Honour) requires the Court to enforce a non-foreign award consistent with art 35 of the Model Law;
• Section 54 of the Federal Court of Australia Act 1976 (Cth) then provides the mechanism for enforcement, by conferring the Court with power to enforce an arbitral award as if it were an order of the Court.

The issue of the retrospective operation of the 2010 amendments

Also in issue in the case was whether certain amendments made to the International Arbitration Act 1974 (Cth) applied to arbitration agreements entered into before the amendments commenced.

Specifically, s 21 of the Act was amended in 2010 to provide that, where the Model Law applies, State or Territory legislation has no application. Prior to 2010, parties were able to "opt out" of the Model Law and rely instead on the State Uniform Arbitration Acts, which generally gave courts greater power to review awards or intervene in the arbitration. ¹ This led to a much-criticised decision which held that choosing arbitral rules to govern the arbitration was the equivalent of opting out of the Model Law. ²

Justice Murphy reasoned that the amended s 21 of the Act applied to arbitration agreements entered into before the amendments were made. In other words, parties cannot opt out of the Model Law, even if the arbitration agreement was entered into during a time when they could. It remains to be seen what effect, if any, these reasons will have on the whole validity of arbitration agreements which seek to opt out of the Model Law.

Implications of the reasons

Subject to any successful appeal, the reasons of Murphy J mean:

• The Federal Court has jurisdiction to enforce international arbitral awards made in Australia and international awards to which the New York Convention does not apply, in accordance with arts 35 and 36 of the Model Law.
• Applying the same reasoning, the Federal Court would also have jurisdiction to enforce interim measures of protection issued by an arbitral tribunal in accordance with art 17H of the Model Law.
• It remains questionable whether a State or Territory Supreme Court has the power to enforce non-New York Convention international awards.
• It would appear that any international commercial arbitration agreements entered into prior to the 2010 amendments are subject to the Model Law, even if the parties purported to opt out of the Model Law (eg, by choosing for a State Commercial Arbitration Act to govern the arbitration). This may affect a party's ability to bring an appeal against any award under the State legislation.

Footnotes

¹ Many of the State Uniform Arbitration Acts have since been repealed, or are in the process of being repealed, by a new Uniform Arbitration Act that is more closely in line with the Model Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.