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International Arbitration Amendment Bill 2010

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2 008-2009-2010

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

INTERNATIONAL ARBITRATION AMENDMENT BILL 2009

SUPPLEMENTARY EXPLANATORY MEMORANDUM

Amendments to be moved on behalf of the Government

(Circulated by authority of the Attorney-General,

the Honourable Robert McClelland MP)



INTERNATIONAL ARBITRATION AMENDMENT BILL 2009

OUTLINE

The International Arbitration Act 1974

The International Arbitration Act 1974 (‘the Act’) implements Australia’s obligations to enforce and recognise foreign arbitration agreements and arbitral awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards done at New York on 10 June 1958 (the New York Convention).

The Act also gives the force of the law to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (‘the Model Law’) as the primary arbitral law that governs the conduct of international arbitrations taking place in Australia.

Finally, the Act also implements Australia’s obligations under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States done at Washington on 18 March 1965.

The International Arbitration Amendment Bill 2009

The International Arbitration Amendment Bill 2009 (‘the Bill’) was developed following a review of the Act announced by the Attorney-General, the Hon Robert McClelland MP, on 21 November 2008.

The amendments to the Act contained in the Bill can be divided into four categories: (a) amendments to clarify the application of the Act and the Model Law (b) amendments concerning the interpretation of the Act (c) amendments to provide additional optional provisions to assist the parties to a dispute and (d) miscellaneous amendments to improve the operation of the Act.

Government Amendments

The proposed Government amendments were developed in response to comments received from practitioners of international commercial arbitration following the development of the Bill.  They are intended to clarify the operation of certain measures contained in the Bill and to add a number of additional measures to further the objects of the Bill.

The Government amendments will amend Schedule 1 of the Bill to:

·       Remove references to ‘leave’ being required before a court will enforce a foreign award in items 5, 6 and 7.  These references are duplicative and may imply that enforcement is a two-step process.  The amendments do not in any way remove the discretion of the courts to refuse to enforce an award under subsections 8(5) and 8(7) of the Act.

·       Insert a new section 18C into the Act that would provide that if a party has been given a ‘reasonable opportunity’ to present their case then this would satisfy the requirement in Article 18 of the Model Law that they be given a ‘full opportunity’ to present their case.  This amendment is intended to give arbitral tribunals a wider degree of flexibility in controlling arbitral proceedings without removing requirements for the parties to be treated with equality.

·       Make a minor amendment to item 16 to clarify the operation of proposed section 21, inserted by item 16 of the Bill.



·       Amend the application of the ‘optional provisions’ in Division 3 of Part III of the Act, as amended by the Bill, to specify that certain provisions apply by default - but can be ousted by the parties to the arbitration agreement - whilst others apply only with the express agreement of the parties.

·       Clarify that new sections 23 and 23A, to be inserted by item 18 of the Bill, do not limit Article 27 of the Model Law.

·       Simplify the operation of proposed section 23, to be inserted by item 18 of the Bill, to remove unnecessary duplication with proposed section 23A.

·       Insert two new ‘optional’ provisions in Division 3 of Part III of the Act that deal with evidence and security for costs.

·       Modernise the operation of section 28 of the Act, which concerns immunity for arbitrators, and provide immunity for entities involved in the appointment of arbitrators under the Act and the Model Law subject to a requirement of good faith.

·       Insert a regulation making power into the Act.

FINANCIAL IMPACT STATEMENT

The proposed Government amendments to the Bill will not have any budgetary implications for the Australian Government.



NOTES ON AMENDMENTS

Amendment 1: amendment to Schedule 1, item 5

1.              Item 5 of Schedule 1 of the Bill amends subsection 8(2) of the Act to remove reference to a foreign arbitral award being enforced in a State or Territory court ‘as if the award had been made in that State or Territory in accordance with the law of that State or Territory’.  The item provides for direct enforcement of the award, with the leave of the court, as if the award were a judgment or order of that court.  Item 7 would insert a new subsection 8(3A), which provides that ‘the court may only refuse leave to enforce the foreign award in the circumstances mentioned in subsections (5) and (7)’ of section 8.

2.              This amendment would remove the reference in item 5 to the award only being enforceable ‘with the leave of that court’.  The inclusion of this phrase may, inadvertently, result in a two-step enforcement process that involves the court considering an application for leave to enforce against the grounds in subsections 8(5) and (7) of the Act and then considering the substance of the application against unspecified criteria.  The intention of items 5 and 7 is that the court would confine itself to the grounds set out in subsections 8(5) and (7) of the Act when deciding whether to enforce an award and that this should be a one-step process.

3.              See also Amendments 2 and 3.

Amendment 2: amendment to Schedule 1, item 6

4.              Amendment 2 is similar to Amendment 1.  Item 6 of Schedule 1 of the Bill provides for the enforcement of a foreign award ‘by the Federal Court of Australia, with the leave of that court, as if the award were a judgment or order of that court’.  This amendment would delete the reference in item 6 to ‘with the leave of that court’ for the reasons outlined with respect to Amendment 1.

5.              See also Amendments 1 and 3.

Amendment 3: amendment to Schedule 1, item 7

6.              As noted under Amendment 1 (see paragraph 1 above), item 7 of Schedule 1 of the Bill would insert a new subsection 8(3A) into the Act, which provides that ‘the court may only refuse leave to enforce the foreign award in the circumstances mentioned in subsections (5) and (7)’ of section 8 of the Act.  Subsections 8(5) and 8(7) reflect the grounds for refusal set out in Article V of the New York Convention to which Part II of the Act gives effect.  The grounds of refusal in the New York Convention are intended to be exhaustive.  Item 7, when combined with items 5 and 6, is intended to clarify that the grounds set out in subsections 8(5) and 8(7) are also intended to be an exhaustive list of the grounds on which a court in Australia may refuse to recognise a foreign award.

7.              Amendment 3 would remove the current reference to ‘leave’ set out in item 7 of Schedule 1 of the Bill.  This amendment is consequential to the removal of references to ‘leave’ in items 5 and 6 (see Amendments 1 and 2).  Accordingly, a court will only be able to refuse to enforce a foreign award on one of the grounds set out in subsections 8(5) and 8(7) of the Act.

8.              See also Amendments 1 and 2.

Amendment 4: amendment to Schedule 1, item 14 - new section 18C

9.              Article 18 of the Model Law provides that ‘the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case’.

10.          One of the key purposes of arbitration is to provide an effective alternative to judicial consideration.  To ensure that this is the case, tribunals need a wide degree of discretion to manage proceedings and even truncate them where this would be in the interests of the parties by achieving a speedy resolution of their dispute.  The requirement in Article 18 that parties be given a ‘full opportunity’ to present their case poses a potential impediment to the effective management of the proceedings by the arbitral tribunal.

11.          Amendment 4 would insert a new section 18C into the Act that would provide that if a party has been given a ‘reasonable opportunity’ to present their case then this would satisfy the requirement in Article 18 of the Model Law that they be given a ‘full opportunity’ to present their case.  This amendment is intended to give arbitral tribunals a wider degree of flexibility in controlling arbitral proceedings without removing requirements for the parties to be treated with equality and have an appropriate opportunity to make out their case.

12.          The proposed amendment is consistent with approaches taken in key jurisdictions overseas, including: Mauritius, New Zealand, Singapore and the United Kingdom.  Hong Kong and Malaysia have also adopted substantially similar approaches.

Amendment 5: amendment to Schedule 1, item 16

13.          Item 16 of Schedule 1 of the Bill would repeal current section 21 of the Act and insert a new section 21 to make it clear that the Model Law applies to the exclusion of State and Territory laws.  This provision provides:

If the Model Law applies to an international commercial arbitration, the law of a State or Territory does not apply to that arbitration.

14.          The intention behind item 16 is twofold.  First, it removes the existing possibility under the Act for parties to an arbitration agreement to ‘opt out’ of using the Model Law to resolve their dispute.  This provision has created significant practical and legal problems.  Secondly, the new section 21 is intended to make it clear that the Act ‘covers the field’ with respect to international commercial arbitration.

15.          Amendment 5 restates the proposed new section 21.  The intention behind the restated provision is identical to the intention behind the current provision.  The amended provision is directed at overcoming concerns that: (a) the language of the provision as currently drafted is too broad and would displace substantive State and Territory laws not just those laws that apply to arbitration and (b) the words ‘if the Model Law applies to an international commercial arbitration’ in the current provision imply that there are circumstances where the Model Law would not apply to an international commercial arbitration.

16.          The restated section 21 provides simply that if the Model Law applies to an arbitration, the law of a State or Territory relating to arbitration does not apply to that arbitration.  Consequently, the arbitration law of a State or Territory will not operate with respect to an international commercial arbitration but any State or Territory laws applying to the substance of the dispute will continue to have application.

Amendment 6: amendment to Schedule 1, new item 16A

17.          Division 3 of Part III of the Act includes a range of optional provisions that supplement the provisions of the Model Law.  These provisions address issues such as consolidation of arbitration proceedings, interest and costs.

18.          Amendment 7 would amend the basis on which these provisions - and additional provisions to be included through the Bill - would apply.  Amendment 6 amends the heading to Division 3 of Part III to better reflect the proposed approach.

19.          See also Amendment 7.

Amendment 7: amendment to Schedule 1, new item 16B

20.          As already noted (see paragraph 17), Division 3 of Part III of the Act includes a range of optional provisions that supplement the provisions of the Model Law.  These provisions address issues such as consolidation of arbitration proceedings, interest and costs.

21.          The provisions of Division 3 apply on either an ‘opt-in’ or ‘opt-out’ basis.  That is, some of these provisions only apply to the arbitration if the parties expressly provide that they apply (for example, consolidation of arbitral proceedings) whereas others automatically apply to an arbitration but the parties can choose to exclude them (for example, costs).

22.          The Bill would add a number of additional provisions to Division 3 addressing issues such as court assistance to obtain evidence, confidentiality and the consequences of a death of a party.  All these provisions are expressed to apply on an ‘opt-in’ basis (that is, the parties must choose to apply them).  The Bill also amends the Act so that all the existing provisions in Division 3 apply on an ‘opt-in’ basis.  In addition, Amendment 11 (see below) would add a number of additional provisions to Division 3 of Part III.

23.          Following detailed consultations with practitioners, it is proposed to adopt a different approach to how the optional provisions in Division 3 of Part III apply (including the new provisions contained in the Bill and these Government amendments).  A number of these provisions have been identified as fundamental tools that should be available as a matter of course in any arbitral proceedings unless expressly excluded - these provisions include those concerning court assistance in taking evidence, interest and costs.  Others, such as the provisions concerning consolidation of arbitral proceedings and confidentiality, are matters to which the parties should expressly turn their minds before they apply.

24.          Amendment 7 would repeal section 22 of the Act and provide that the provisions of Division 3 of Part III would apply on the following basis:

Section

Description

Opt-in/Opt-out

23*

Parties may obtain subpoenas

Opt-out

23A*

Failure to assist arbitral tribunal

Opt-out

23B*

Default by party to an arbitration agreement

Opt-out

23C*

Disclosure of confidential information

Opt-in

23D*

Circumstances in which confidential information may be disclosed

Opt-in

23E*

Arbitral tribunal may allow disclosure in certain circumstances

Opt-in

23F*

Court may prohibit disclosure in certain circumstances

Opt-in

23G*

Court may allow disclosure in certain circumstances

Opt-in

23H*

Death of a party to an arbitration agreement

Opt-out

23J*

Evidence

Opt-out

23K*

Security for costs

Opt-out

24

Consolidation of arbitral proceedings

Opt-in

25

Interest up to making of award

Opt-out

26

Interest on debt under award

Opt-out

27

Costs

Opt-out

* To be inserted by the International Arbitration Amendment Bill (including these Government amendments).

25.          This approach reflects international practice which is particularly important where parties to a dispute choose to arbitrate in Australia as a ‘neutral’ venue.  The parties - and their lawyers - may not be familiar with the Act and draft arbitration clauses on an assumption that the Act will be similar to legislation overseas.  The proposed amendments will ensure the approach taken to Division 3 of Part III is in line with approaches taken in most prominent arbitration jurisdictions such as Hong Kong, Singapore and the United Kingdom.

26.          See also Amendments 6 and 11.

Amendment 8: amendment to Schedule 1, item 18 (proposed section 23)

27.          New sections 23 and 23A, to be inserted by item 18 of Schedule 1 of the Bill, provide for a party to an arbitral proceeding to obtain assistance from a court in the form of a subpoena or an order for a person to appear before a court for examination or to produce a relevant document or do a relevant thing.

28.          As currently drafted, proposed paragraph 23(5)(a) provides that before a court may issue a subpoena against a person who is not a party to the arbitration proceedings the person must be given an opportunity to make representations to the court.

29.          The purpose of this provision is to protect third parties to the proceedings.  However, it creates unnecessary duplication with new section 23A.  Under the proposed scheme a third party issued with a subpoena has a number of options: (a) they can comply with the subpoena (b) they can seek to have the subpoena set aside in the court that issued it or (c) they can decline to comply (with or without notification to the tribunal).  In the latter case - failure to comply - the party who sought the subpoena can then seek an order from the court under proposed section 23A.  The third party against who the order is sought is entitled to be heard before the order is made under paragraph 23A(5)(a).

30.          In order to simplify these provisions, and preserve the speed and flexibility that subpoenas provide, Amendment 8 would simplify the current provisions by restating proposed subsection 23(5) and, in doing so, remove the current requirement in section 23(5)(a).  Under the restated subsection the court would not be able to issue a subpoena to a person who is not a party to the arbitral proceedings unless the court is satisfied that it is reasonable to do so in all the circumstances.  A person who has been subpoenaed would continue to be able to challenge the issue of the subpoena in the court from which it originated and have the option of being heard before a further order is made under proposed section 23A.  The amendment will lead to a more streamlined approach without unnecessarily diminishing proposed safeguards.

Amendment 9: amendment to Schedule 1, item 18 (proposed section 23)

31.          Article 27 of the Model Law provides:

The arbitral tribunal or a party with the approval of the arbitral tribunal may request from a competent court of this State assistance in taking evidence.  The court may execute the request within its competence and according to its rules on taking evidence.

32.          New sections 23 and 23A, to be inserted by item 18 of Schedule 1 of the Bill, provide for a party to an arbitral proceeding to obtain assistance from a court in the form of a subpoena or an order for a person to appear before a court for examination or to produce a relevant document or do a relevant thing.

33.          Amendment 9 would clarify that new section 23 does not limit the other types of assistance that may be available under Article 27 of the Model Law.  The amendment is intended to preserve the broad discretion of the courts in assisting with taking evidence and allow for the courts to provide new types of assistance as they emerge - subject to the rules of the individual court.

34.          See also Amendment 10.

Amendment 10: amendment to Schedule 1, item 18 (proposed section 23A)

35.          Amendment 10 would clarify that new section 23A, to be inserted by item 18 of Schedule 1 of the Bill, does not limit the other types of assistance that may be available under Article 27 of the Model Law for the same reasons as set out under Amendment 9 above in relation to new section 23.

36.          See also Amendment 9.

Amendment 11: amendment to Schedule 1, item 18 (new proposed sections 23J and 23K)

37.          By repealing section 21 of the Act and inserting a ‘cover the field’ provision (see Amendment 5) the Bill removes any recourse the parties may have to the provisions of State and Territory arbitration legislation.  The Bill compensates for this by inserting additional provisions into the Act that would provide for the parties to obtain court assistance in the form of subpoenas and other orders.  These are the powers contained in the State and Territory Acts that are most frequently relied on by parties to ‘supplement’ the Act.

38.          One concern expressed by stakeholders has been that in removing recourse to State and Territory laws parties will no longer be able to access section 47 of the Commercial Arbitration Acts, which provides:

General power of the Court to make interlocutory orders

The Court shall have the same power of making interlocutory orders for the purposes of and in relation to proceedings as it has for the purposes of and in relation to proceedings in the Court.

39.          Parties rely on this provision, in particular, to seek two kinds of assistance from the courts that are not available through the interim measures regime in the Model Law - (a) orders for security for costs and (b) orders allowing for the inspection or photographing of evidence or taking samples from, making observations of, or conducting experiments on any evidence.

40.          This type of assistance is available in a number of foreign jurisdictions, including: Hong Kong, Mauritius (security of costs only), New Zealand (security of costs only), Scotland and the United Kingdom.

41.          One of the key conditions attached to the decision to provide that the Act covers the field for the purposes of international commercial arbitration was that parties would not be disadvantaged by no longer having access to State and Territory arbitration laws.  It is well understood that the Model Law is not complete on its own terms.

42.          The provision of security for costs protects parties that are the subject of ill considered actions while orders with respect to evidence may be critical to ensuring a tribunal can make a decision based on the most relevant and accurate facts.

43.          Amendment 11 will insert new sections 23J and 23K into the Act.  Proposed section 23J deals with orders with respect to evidence.  These allow an arbitral tribunal to order various matters such as allowing the tribunal or a person to inspect, photograph, observe or conduct experiments on evidence in the possession of a party to the proceedings and allowing the tribunal or a person to take a sample of such evidence.

44.          A person other than the tribunal will only be specified under an evidence order to conduct experiments etc if they are a party to a proceeding, an expert appointed by the tribunal under Article 26 of the Model Law, or, with the permission of the tribunal, an expert appointed by a party.

45.          Proposed section 23K allows for the tribunal to order that a party to the arbitral proceedings to pay security for costs.  Security for costs helps to protect parties from frivolous or vexatious actions and is particularly important where the ability of a party taking a matter to arbitration to pay for the costs of the other party is in doubt.  Whether security for costs is payable would be entirely at the discretion of the tribunal.

46.          Proposed subsection 23K(2) will provide that the tribunal cannot make an order for security for costs solely on the basis that the party is not ordinarily resident in Australia, is incorporated under the law of a foreign country or is a corporation or association whose central management or control is exercised in a foreign country.  This is intended to protect foreign parties in arbitration from discrimination, thus ensuring Australia is an attractive venue for foreign businesses to resolve their disputes.  This is similar to the approach taken in Hong Kong, Singapore and the United Kingdom.

47.          It is important to distinguish proposed section 23K from Article 17E of the Model Law which allows the tribunal to require a party requesting an interim measure under Article 17 to provide appropriate security with respect to that measure.  Proposed section 23K is of broader application and applies to all aspects of the arbitration.

48.          Both sections 23J and 23K will operate as interim measures under the Model Law.  In particular, this means that the provisions of the Model Law relating to interim measures in Articles 17A and 17D to 17J will apply to them.  For example, they will be enforceable under Article 17H just as any other interim measure and will also be able to be granted by a court under Article 17J.

49.          See also Amendment 5.

Amendment 12: amendment to Schedule 1, new item 23A

50.          Section 28 of the Act provides a limited immunity provision for arbitrators in the course of exercising their arbitral functions.  Amendment 12 would repeal this provision and insert a new immunity provision.

51.          The new provision would differ from section 28 in two ways.  First, it would be drafted in a more contemporary manner providing a broader immunity coverage but limited by a ‘good faith’ requirement.  This would provide a more appropriate balance of rights and interests as between arbitrators and parties.

52.          Secondly, the provision would extend to an entity charged with appointing arbitrators to an arbitral tribunal.  This occurs in a number of situations under the Act and the Model Law.  For example, under Article 11(3), where the parties have not agreed upon an appointment process for an arbitral tribunal consisting of three arbitrators, each party chooses one arbitrator and these two arbitrators then choose a third.  Under Article 11(4), where the procedure agreed by the parties breaks down, either party may request the court, or another party appointed for this purpose, to make the appointment or appointments.  In all such cases the arbitrator or other entity would be given immunity under this amendment provided they act in good faith.  The extension of immunity in this regard complements new section 18, to be inserted by item 13 of the Bill, which allows for the appointment of a court or other body to act as an appointing authority.  While courts already enjoy wide immunity, should another body be designated to perform these functions they would not currently enjoy any immunity.

Amendment 13: amendment to Schedule 1, new item 23B

53.          Amendment 13 would amend Schedule 1 to add a new item 23B to the Bill.  This new item would insert a new section 30A addressing severability into Division 4 of Part III of the Act.  The proposed section sets out the various constitutional heads of power upon which the Bill can draw if its operation is expressly confined to acts or omissions under those constitutional powers.

Amendment 14: amendment to Schedule 1, item 26 (heading)

54.          Item 26 of Schedule 1 of the Bill inserts a new Part V into the Act that currently deals with matters of interpretation.  Amendment 14 will insert a new regulation making power into Part V.  Amendment 14 amends item 26 to change the heading for Part V to reflect its amended content.

55.          See also Amendment 15.

Amendment 15: amendment to Schedule 1, item 26 (new section 40)

56.          The Act does not currently contain a regulation making power.  As noted above (see paragraph 52), new section 18, to be inserted by item 12 of Schedule 1 of the Bill, will allow the nomination of a court or other body to act as an appointing authority for arbitrators under the Model Law.  Such a nomination will be made by way of regulations.  Amendment 15 inserts a regulation making power into the Act, new section 40, to facilitate regulations being made under new section 18.  The power is stated in general terms to allow for future provisions that would require the making of regulations.