Bills Digest no. 163 2009–10
International Arbitration Amendment Bill
2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
International Arbitration
Amendment Bill 2009
Date introduced: 25 November 2009
House: House
of Representatives
Portfolio: Attorney-General
Commencement: Royal Assent, apart from items 6, 8, 13 and 25 in
Schedule 1. Commencement of these items is tied to commencement of
the Federal Justice System Amendment (Efficiency Measures) Act
(No. 1) 2009.
Links: The
links to the Bill, its Explanatory Memorandum and second
reading speech can be found on the Bills page, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To amend the International
Arbitration Act 1974 (‘the IAA’) so as to:
- clarify and update the application of the IAA by adding
provisions from the 2006 revision of the United Nations Commission
on International Trade Law (UNCITRAL) Model Law on International
Commercial Arbitration 1985 (Model Law); and a set
of non-Model Law (Model Law Plus)[1] provisions
- provide greater guidance to the courts in interpreting the
IAA
- provide additional option provisions to assist the parties to a
dispute, and
- improve the overall operation of the IAA
By the 1960s, it had become
apparent that the widespread increase in global trade would
continue and remain a dominant feature of commercial life. In this
context, the efficacy of ongoing reliance on inconsistent national
and regional regulations to govern international trade demanded a
re-think. A global set of standards and rules designed to harmonize
the law of international trade was required.
UNCITRAL was established by the United Nations General Assembly
by its Resolution 2205 (XXI) of 17 December 1966. It is ‘the
core legal body of the United Nations system in the field of
international trade law’.[2] The mandate of UNCITRAL is:
to remove legal obstacles to international
trade by progressively modernizing and harmonizing trade law. It
prepares legal texts in a number of key areas such as international
commercial dispute settlement, electronic commerce, insolvency,
international payments, sale of goods, transport law, procurement
and infrastructure development. UNCITRAL also provides technical
assistance to law reform activities, including assisting Member
States to review and assess their law reform needs and to draft the
legislation required to implement UNCITRAL texts.[3]
A model law refers to a legislative draft that is recommended to
States for enactment as part of their national law. The Model Law
is intended to be used by commercial parties in negotiating
international commercial transactions. Model laws are developed by
UNCITRAL in consultation with member states, and are generally
finalised and adapted by UNCITRAL, at its annual session.
The Model Law was prepared by UNCITRAL, and adopted by the
United Nations Commission on International Trade Law on 21 June
1985. Its aim is to provide parties in a commercial dispute with
the maximum amount of freedom to expeditiously and with finality
settle their disputes, while limiting the circumstances in which
courts may intervene in and draw out such arbitral
proceedings.[4] In
2006 the Model Law was amended – see below.
The IAA incorporates the Model Law. It also implements the 1958
New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (the New York Convention)[5] which provides for the international
enforcement of arbitration agreements and awards made in other
states; and the 1965 Washington Convention on the Settlement of
Investment Disputes between States and Nationals of Other States
(the Washington Convention) which provides for a special
system of arbitration for disputes between States and foreign
investors.[6] In
general terms, the aim of the IAA is:
to facilitate international trade and commerce
by encouraging the use of arbitration as a method of resolving
disputes. The Act does this by facilitating the use of arbitration
agreements to manage disputes – particularly by giving force
to the Model Law – and by facilitating the enforcement and
recognition of foreign arbitration agreements and awards by giving
effect to the New York Convention.[7]
On 21 November 2008, Attorney-General, Robert McClelland
announced a major review of the IAA to consider whether it should
be amended to:
- ensure it provides a comprehensive and clear framework
governing international arbitration in Australia
- improve the effectiveness and efficiency of the arbitral
process while respecting the fundamental consensual basis of
arbitration, and
- consider whether to adopt ‘best-practice’
developments in national arbitral law from overseas.[8]
This announcement coincided with the release of a discussion
paper[9] which
outlined key areas for review ‘to ensure that the IAA is able
to provide the most optimal support to Australian businesses
involved in cross border trade’.[10] Submissions received in response to
the discussion paper are available via the Attorney-General’s
Department website.[11]
The impetus for the review was
problematic decisions by Australian courts which created
unsustainable uncertainty, and particular overseas developments
that demanded acknowledgement and response. For example, the
decision in Eisenwerk v Australian Granites Ltd[12] resulted in
uncertainty regarding the operation of section 21 of the IAA, where
it held that the adoption of arbitral rules constituted opting out
of the Model Law. Model Law only applies to ‘international
commercial arbitration’ as defined in Article 1 of the Model
Law. Once a law can be characterised as ‘international’
and ‘commercial’ in nature, the Model Law will
apply.[13] Thus,
the vast majority of foreign arbitration agreements will be
captured by the scope of the Model Law.[14] However, in circumstances where an
agreement to arbitrate does not satisfy Article 1 of the Model Law,
then the arbitration agreement is governed by a commercial
arbitration act. The significance of this lies in the fact that
typically, commercial arbitration acts provide far greater
opportunity for judicial intervention than is permitted under the
Model Law. The outcomes for the parties may be more divergent than
what would have been envisaged under the terms of the Model
Law.
The present terms and operation of
section 21 of the IAA provide that the parties may agree that
‘any dispute that has arisen between them is to be settled
otherwise than in accordance with the Model Law’. In
the case of Eisenwerk v Australian Granites Ltd, basically
the issue arose as to whether an arbitration agreement that
incorporated the rules of an arbitral institution, such as the 1976
UNCITRAL Rules, amounts to an exclusion of the Model Law under
section 21 of the IAA. The Queensland Court of Appeal decided that
it did, and in doing so invited the question which, if any,
procedural law was to govern the arbitration in such circumstances.
In the cases of both Eisenwerk and American
Diagnostica v Gradipore[15], the courts decided that every arbitration taking
place in Australia (and not covered by the Model Law) must be
governed by a procedural law. Thus, the provisions of the
arbitration act would problematically apply as already indicated
above. This issue is addressed by the amendment relating to section
21, at item 18 of the Bill.
In 2006 the UNCITRAL Model Law was
revised. Significantly, the 2006 version of the Model Law uses an
expanded definition of ‘agreement in writing’ (Article
7, Option 1) and provides more comprehensive rules for the granting
of interim measures of protection (Chapter IV(A)).[16] The amendments in the Bill also
address these developments. However, the Bill does not include an
amendment dealing with ex parte orders as provided for in
the 2006 amendments.
In addition to the above, the Government’s review can also
be located within its broader and explicit agenda of facilitating
and promoting more ‘effective resolution of commercial
disputes, including through alternative dispute
resolution’.[17] And, it is intended to raise Australia’s standing
in the international community so as to promote Australia as
location of choice for parties around the world to resolve their
disputes.
The Government relied on the discussion paper,[18] associated submissions, academic
literature and reflections on overseas practice in order to
identify aspects of the legislation which were in need of
amendment.[19] And
in his second reading speech, the Attorney-General, Robert
McClelland stated that:
It was very clear from the submissions received
as part of the Review, that [...] in particular, there was strong
support for the retention of the UNCITRAL Model Law as the arbitral
law governing international commercial arbitrations conducted in
Australia.[20]
It is therefore intended that:
The reforms contained in the International
Arbitration Amendment Bill will ensure the Act remains at the
forefront of international arbitration practice.[21]
The Explanatory Memorandum states that there will be no
financial impact from this Bill.[22]
Item 1: proposes to insert a new
subsection 2D which would state and clarify the objects of
the IAA, providing guidance for the courts in exercising
their powers and interpreting the IAA. The new
‘objects’ section of the IAA is buttressed by
item 26 (proposed section 39)
which mandates and directs the court to have regard to the objects
of the IAA when performing functions or exercising powers under the
IAA or the Model Law, when performing functions or exercising
powers under an agreement or award to which the IAA applies, or
when interpreting the IAA or the Model Law or interpreting an
agreement or award to which the IAA applies.
Items 2 to 10 amend Part II of the IAA. This
Part gives effect to Australia’s obligations under the New
York Convention to enforce and recognise foreign arbitration
agreements.
Item 4: Subsection
3(1) of the IAA provides that arbitration
agreement means an agreement in writing of the kind
referred to in sub-article 1 of Article II of the Convention. The
definition provided by the New York Convention of an
‘agreement in writing’ is inclusive. However, the trend
of the jurisprudence by national legislators and courts of an
apparent narrowing of the meaning of this term has caused a deal of
concern among State Parties and commercial players. Given the
standard and routine use of electronic communications in
international trade, concern was raised about the practice of
construing ‘agreement in writing’ unhelpfully narrowly.
The 2006 revisions to the Model Law addressed this by way of
recommendation that the circumstances described in sub-article 1 of
Article II, not be considered exhaustive. Proposed
subsection 3(4) clarifies that ‘agreement in
writing’ is to be afforded a sensibly broad interpretation,
so as to account for advances in communication methods.
Furthermore, an agreement is in writing if: ‘it is contained
in an exchange of statements of claim and defence in which the
existence of an agreement is alleged by one party and not denied by
the other’.
Item 5:
Subsection 8(2) of the IAA provides that ‘a
foreign award may be enforced in a court of a State or Territory as
if the award had been made in that State or Territory in accordance
with the law of that State or Territory’. The amendment
proposed to subsection 8(2) would clarify that the
enforcement of a foreign award does not need to be made under State
or Territory arbitration legislation. To date, the jurisprudence in
Australia reflected the opposite. The concern with the way in which
subsection 8(2) has been interpreted is that it
may permit a court to decline to enforce that foreign award, based
on the grounds provided for in the State or Territory legislation.
Combined with the amendment proposed by item 7,
this amendment operates to erase any application of the laws of the
States and Territories in enforcing a foreign award.
Item 6: This item
repeals subsection 8(3) and replaces it with a provision that
enables the Federal Court to enforce a foreign arbitral award
‘as if the award were a judgement or order of that
court’. This will apply to proceedings to enforce a foreign
award brought on or after the item’s commencement.[23]
Item 7: The New
York Convention provides the party against whom enforcement is
sought can object to the enforcement by submitting proof of one of
the grounds for refusal of enforcement which are listed in Article
V(1) which are intended to be exhaustive. The first category of
grounds relates to ‘matters that go to the circumstances in
which the award was made and whether the award, is in fact, binding
on the parties’.[24] The second category of refusal relates to the nature of
the award and whether it is indeed capable of settlement under the
law of the country itself.[25] The court may on its own motion refuse enforcement for
reasons of public policy as provided in Article V(2).
Subsections 8(5)
and 8(7) of the IAA are intended to mirror the two
categories for refusal to recognise and enforce and award which
appear in Article V of the New York Convention. However, the review
of the IAA revealed concern that Australian courts do not
necessarily treat the aforementioned grounds as being exhaustive.
Hence, proposed subsection 8(3A) clarifies that
the grounds listed in subsections 8(5) and
8(7) are indeed exhaustive.
Item 9: The New
York Convention provides that a court may on its own motion refuse
enforcement of an arbitral award for reasons of public policy
(Article V(2)). Subsection 8(7) of the IAA
contains a similar provision. Existing section 19 of the IAA
defines ‘public policy’ grounds as they relate to
sections 34 and 36 of the IAA. However the use of the term
‘public policy’ is left without similar explanation for
the purposes and operation of subsection 8(7), thus potentially
leading to a different interpretation. To avoid this, the
definition of ‘public policy’ in section 19 of the IAA
is replicated in proposed subsection 8(7A).
Item 10: Article
VI of the New York Convention and subsection 8(8) of the IAA are
both intended to ensure that an award that is adjourned not be
enforced in circumstances, where in time, it may in fact be
practically unenforceable.[26] However, as it is currently drafted, without any
effective qualifications or safeguards, subsection 8(8) may be used
to thwart the enforcement of an award. Proposed subsections
8(9) and 8(10) provide that the adjournment of an award be
lifted in one of four circumstances: where the application for
adjournment is not done in good faith, with reasonable diligence,
has been withdrawn or dismissed, or is for any other reason, not
justified.
The court may also order costs
against the party who made the application for setting aside or
suspension of the award.[27]
Item 11: repeals
subsection 15(1) which provides the meaning of
Model Law, and substitutes it with a list of definitions for:
Confidential information in relation
to arbitral proceedings, means information that relates to the
proceedings or to an award made in the proceedings and
includes:
(a) the
statement of claim, statement of defence, and all other pleadings,
submissions, statements, or other information supplied to the
arbitral tribunal by a party to the proceedings
(b) any
evidence (whether documentary or other) supplied to the arbitral
tribunal
(c) any notes
made by the arbitral tribunal of oral evidence or submissions given
before the arbitral tribunal
(d) any
transcript of oral evidence or submissions given before the
arbitral tribunal
(e) any
rulings of the arbitral tribunal; and
(f) any
award of the arbitral tribunal.
Disclose in relation to confidential
information, includes giving or communicating the confidential
information in any way.
Item 12: inserts a
new subsection 16(2) which states that
‘arbitration agreement’ has the same meaning given in
Option 1 of Article 7 of the Model Law’. Article 7 of the
Model Law defines the term ‘arbitral agreement’. Option
1 provides that such an agreement may be concluded orally, through
conduct or other means, provided that its content is recorded in
some form. Also, the use of electronic communication for the
purposes of concluding an agreement is acknowledged and
recognised.
Item 13: repeals
section 18 of the IAA, substituting it with a new provision which
enables a court or authority to be prescribed as competent to
perform the functions referred to in Articles 11(3) and (4) of the
Model Law relating to the failure to appoint arbitrators.
Proposed subsection 18(3) provides that the
following courts are taken to be competent to perform those
functions:
- if the place of arbitration is, or is to be in a State or
Territory, the Supreme Court of that State or Territory
- If there is no Supreme Court established in that Territory, the
Supreme Court of the State or Territory that has jurisdiction in
relation to that Territory
- in any case, the Federal Court of Australia.
Item 14: Article
12 of the Model Law provides that the appointment of an arbitrator
may be challenged and provide the grounds on which this may occur.
New section 18A of the IAA provides that the test
of whether there are ‘justifiable doubts as to the
impartiality or independence of a person approached in connection
with a possible appointment as an arbitrator’ is whether
‘there is a real danger of bias’.[28]
Item 15: repeals
section 19 (an interpretive provision) and substitutes it with a
new section 19 that provides for the recognition
and enforcement of interim measures under Article 17H of the Model
Law. It also clarifies that an award is in conflict with public
policy if (a) the making of the award was induced or affected by
fraud or corruption, or (b) a breach of rules of natural justice
occurred in connection with the making of an award.
Item 16:
Section 21 of the IAA provides that the parties
may agree that ‘any dispute that has arisen between them is
to be settled otherwise than in accordance with the Model
Law’. In the case of Eisenwerk v Australian Granites
Ltd, basically the issue arose as to whether an arbitration
agreement that incorporated the rules of an arbitral institution,
such as the 1976 UNCITRAL Rules, amounts to an exclusion of the
Model Law under section 21 of the IAA. The Queensland Court of
Appeal decided that it did, and in doing so invited the question
which, if any, procedural law was to govern the arbitration in such
circumstances. In the cases of both Eisenwerk and
American Diagnostica v Gradipore (1998) 44 NSWLR 312, the
courts decided that every arbitration taking place in Australia
(and not covered by the Model Law) must be governed
by a procedural law. Thus, the provisions of the arbitration
act would problematically apply as already indicated above. This
issue is addressed by the amendment relating to section 21,
ensuring that the Model Law covers the field.
Item 18: proposes
amendments relating to optional provisions which parties may choose
to adopt in order to assist them with resolving their disputes more
effectively and fairly.
The amendments proposed are in
relation to:
- The obtaining of subpoenas: new section
23
- Action in relation to a party’s failure to attend or
assist a tribunal: new section 23A
- Default by a party to an arbitration agreement: new
section 23B
- Rules relating to the non disclosure of confidential
information: new section 23C
- Circumstances relating to disclosure of confidential
information: new section 23D
- Circumstances in which an arbitral tribunal may allow
disclosure of confidential information in relation to proceedings:
new section 23E
- Circumstances in which the court may prohibit disclosure of
confidential information: new section 23F
- Circumstances in which the court may allow disclosure of
confidential information: new section 23G
- Consequence of death of a party to an arbitration agreement:
new section 23H
Item 22:
controlling costs is an important element in maintaining the
attractiveness of arbitration. New subsection
27(2A) states that where a tribunal intends to provide a
direction limiting costs, then it is obliged to give the parties
sufficient notice, so that they are able to factor this into
managing their decisions and costs.[29]
Item 24: Existing section 35 of the IAA
provides for the enforcement of awards made under the Washington
Convention. This item repeals subsection 35(2) and replaces it with
a new subsection 35(2) which provides that
‘an award may be enforced in the Supreme Court of a State or
Territory with the leave of that court as if the award were a
judgement or order of that court’. This is done for the same
rationale as provided in item 5.
Item 25: The current provision in
subsection 35(4) is repealed and is substituted
with a provision which allows the Federal Court of Australia to
enforce a foreign award ‘as if that award were a judgement or
order of that court’. Whereas, the current situation is
that the enforcement of foreign awards is only by State or
Territory courts.
Item 26: proposes that a Part V be inserted in
the IAA, which deals with matters to which the courts must have
regard when:
- exercising powers or performing functions under the IAA and the
Model Law
- exercising powers or performing functions under an agreement or
award to which the IAA applies
- interpreting the IAA or the Model law, and
- interpreting an agreement or award to which the IAA
applies.
While the role of the courts in assisting arbitration is
recognised as being important, it is intended that their role would
be confined to needs basis.[30]
As already discussed with item 1,
proposed section 39 mandates that that courts must
have regard to the objects of the IAA. It also requires the
courts to have regard to Article 2A which was inserted into the
2006 revised Model Law. That article basically states that when the
courts are interpreting the Model Law, they must have regard to
‘its international origin and the need to promote uniformity
in its application and observance of good faith’.
Requiring that the Model Law is interpreted consistently with
general state practice internationally, is pivotal in promoting
Australia as a location for conducting international
arbitration.
Part
2—Application
This part of the Bill basically provides for the application of
amendments listed in Part 1.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2404.
Juli Tomaras
7 June 2010
Bills Digest Service
Parliamentary Library
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