The Role of the Courts in International Arbitration
22 March 2016
Federal Court of Australia, Melbourne
Setting Aside Awards
International Arbitrator and Barrister
- I have been given the unenviable task of speaking last in tonight’s all-star line up. But I am lucky because in a field that can be dry and technical, my topic setting aside awards, has generated emotion, excitement and controversy.
- Most recently the well known arbitrator Albert Jan Van Den Berg provocatively described setting aside as the bête noire of international arbitration.2
- For those not as fluent in French as our host the Chief Justice, bête noire literally means “black beast”, used here to mean “a thing that one dislikes very much”.
- So why is it that the setting aside (or annulment) action is “disliked very much” by some in international arbitration, even to the extent that there are those who wish to eliminate it completely.
- I suggest a couple of reasons for this depth of feeling:
- the double control of awards by both the enforcement and setting aside actions – with the risk of duplication and different results;
- because setting aside can be used to delay effective enforcement of an award, and we know that client’s rate enforceability of awards as arbitration’s most “valuable characteristic” according to the recent Queen Mary University/White & Case 2015 international arbitration survey;3
- because setting aside is the favoured “weapon” in the tool kit of those who engage in “guerilla tactics” when trying to defuse an unfriendly award. For this reason it also potentially involves forum shopping and races to judgment, in cases that can have more twists and turns than an international spy novel. I had my own experience of this when working on an ICC arbitration in Thailand. Immediately the award was handed down the respondent, a government instrumentality, applied to set the award aside, delaying and frustrating enforcement efforts elsewhere; and
- finally, because setting aside raises fundamental philosophical and jurisprudential questions about international arbitration – in particular how an award set aside at the seat and which is a nullity under the law of the seat can still exist in order to be enforced in another state.
The relevant provisions
- First a brief overview of Article 34 of the Model Law which provides for setting aside under Australian law.4
- Setting aside of an award can only be ordered in fresh proceedings brought within three months of the party making the application having received the award.5
- Only the Australian court as the court of the seat can entertain an application to set aside an international arbitral award made in Australia pursuant to Article 34.6 The Australian court cannot entertain a setting aside action or set aside an award made in another seat, although it may be asked to consider that award on an application to enforce it.7
- Setting aside is discretionary due to the word “may” in Article 34(2) in that once a ground is established the award will be set aside unless the Court finds that the outcome of the award would not have been different without the violation. The award can be set aside in its totality or remitted back to the Tribunal to eliminate the reason(s) for setting aside: Article 34(4).
- The grounds for setting aside are essentially the “usual” “New York Convention” grounds already identified by Neil Kaplan,8 noting that in relation to the “public policy” ground there may be potential differences with enforcement due to wording and scope differences on public policy, and differences as to the substance of public policy between States.9
- Express provision is made in the Model Law for the overlap between setting aside and enforcement - found in Article 36(1)(a)(v) of the Model Law - which provides that where the award has been set aside or suspended by a court of the seat or place of arbitration the enforcing court “may” refuse enforcement ie. it provides an additional ground on which enforcement may be refused.
The experience of the Australian courts
- The Australian courts have heard a number of applications to set aside an international award under Article 34 of the Model Law (or to set aside a domestic award under the equivalent domestic law provision). In these cases, consistently with the approach taken by the courts of Hong Kong and Singapore, the Australian courts have approached setting aside from the position that it is not an appeal, the Court will not address the substantive merits of the dispute or the correctness of the award, whether concerning errors of fact or law, and the cases are determined on the basis of or by reference to the New York Convention grounds raised. This confirms and evidences the pro-enforcement approach of the Australian courts.
- These cases have been largely “uncontroversial” in this context because, on my review, no Australian international arbitral awards have been set aside by the court at the Australian seat in recent times.
Briefly – clashes between setting aside and enforcement applications in an international context
- It is where there is both a setting aside action at the seat, and an enforcement action going on in another State, that things start to get both complex and interesting.
- I want to briefly consider the case of Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan  UKSC 46;  1 AC 76310 Although Dallah is not the most recent case, it is an important one about the interface between the enforcement and setting aside actions.
- Dallah confirms my thesis that setting aside/annulment cases provoke emotion and excitement - Gary Born, one of only two lawyers in the world ranked by Chambers with global "starred" status for international arbitration, describes Dallah as “pathological” for reasons that will become clear.
- Dallah sought enforcement in England of an award made in France for US$20 million, which was opposed by the Respondent the Government of Pakistan. After the English proceedings had been on foot for a while and there had been a first instance decision declining to enforce the award,11 Dallah also brought proceedings seeking “exequatur” (recognition) of the award in France, again which was opposed by Pakistan. Pakistan also brought an application to set aside the award at the Paris seat.
- The UK Supreme Court gave judgment first and applying French law held that there had been no common intention for Pakistan to be a party to the arbitration agreement and no material to justify the tribunal’s conclusion and declined to enforce the award.
- A few months later, the French court also applying the same French law based on international principles involving a search for common intention, reached the opposite conclusion and declined to set aside the award.
- Given these results, it is hardly surprising that commentators have described the Dallah case, as a game of tennis, with different games or matches going to each side.12 Indeed in Dallah itself Lord Mance used a tennis analogy when discussing the challenge to jurisdiction.13
- Gary Born has observed14 that the regrettable course of the Dallah case and conflict between the French and English decisions was pathological: contrary to both the both the purpose and specific terms of the New York Convention. It undermined the fundamental objectives of the New York Convention – to ensure uniform treatment of arbitral awards and facilitate effective enforcement.
- Some commentators have suggested that Dallah’s tactics were flawed - it should have sought recognition in the French courts first, then following that recognition brought its enforcement action in the English courts where it could have sought to rely on an issue estoppel.15 There are of course no guarantees that this would have led to a different result.
- It is useful to note in the context of Dallah the recent comments of Justice Croft writing extra curially about a key challenge for courts in this area, namely, the temptation to approach arbitration-related matters through the prism of common law doctrines and equitable principles not found in the international legal framework within which Australia's arbitration regime sits.16
Some Australian cases
- I now wish to mention briefly a couple of Australian cases that also deal with some of the difficult issues raised when there is an application to set aside an award in the seat and a cross application for enforcement in another state.
- First, the Full Federal Court case of Gujarat NRE Coke Limited v Coeclerici Asia (Pte) Ltd  FCAFC 109; 304 ALR 46817 (Gujurat). The facts were that Judge Mackie QC of the English court of the seat had declined to set aside an award on the ground of alleged procedural unfairness.
- The case came before the Federal Court of Australia on the enforcement of the award, which was also opposed on the grounds of alleged procedural unfairness. At trial Justice Foster dismissed the opposition and ordered that the award be enforced. On appeal the Full Court of the Federal Court determined that the appellants had been given a reasonable opportunity to put their case and dismissed that ground of challenge to enforcement.
- In relation to whether an issue estoppel arose, although it was not strictly necessary to deal with the issue, the Full Court made the following helpful and important observations (at -):
- the members of the Full Court agreed with the trial judge’s conclusion as to the appropriateness of not departing from the conclusion of Judge Mackie QC;
- they said that it will generally be inappropriate for the enforcing court to reach a different conclusion on the same question of asserted procedural defects as that reached by the court of the seat;
- they said (agreeing with Colman J of the English Court in Minmetals18) that only in exceptional cases will the courts reinvestigate procedural defects;19 and
- outside such exceptional cases, any suggestion that they do so should be strongly deprecated.
- Secondly, the recent Federal Court case of Ye v Zeng  FCA 119220 is of interest because it involved cross applications for enforcement and setting aside and some interesting issues relating to issue estoppel that were touched on.
- In that case, the award creditor under a Chinese award sought to enforce its award in the Federal Court whilst an application to set aside the award was still pending in the Chinese court. This is a classic manoeuvre when an award creditor is trying to avoid the delay and frustration of a setting aside application at the seat – it takes positive action by continuing to seek to enforce the award.
- Allsop CJ sitting at first instance held at -, in summary:
- while setting aside was a ground not to enforce an award “it did not follow from the fact that an award is set aside in the seat country that the award will not be enforced elsewhere”;
- if an award was set aside because of a failure to afford procedural fairness, and that judgment was apparently made by an intermediate appellate Chinese court, applying Chinese law as the lex arbitri, an Australian court would need a lot of persuasion to take a different view and to enforce the award set aside at the seat in these circumstances.
Suggestions for reform and conclusion
- In closing, I come back to Van Den Berg who accepts that eliminating the setting aside action is unlikely to happen.21
- He does however make the utopian suggestion that in the future states should transfer control over an international award to an independent international body with exclusive jurisdiction to set aside an award.22
- Alternatively, and more realistically, he suggests that if a setting aside application upholds the award then enforcement of the award should be automatic in all countries (the ICSID model) This gives the supervisory court the last say with universal effect on the validity of an international arbitral award.23
- I end by coming back to Dallah - with its US$20 million award against Pakistan that it could only enforce in the Paris seat, rather than in England. For Dallah the line from Casablanca - ‘We’ll always have Paris’ – would have special meaning.
- This is a corrected transcript of a presentation given on 22 March 2016 as part of the series The Role of the Courts in International Arbitration, a joint initiative of CIArb Australia and the Federal Court of Australia.
- Link to CV
- Albert Jan Van Den Berg “Should the Setting Aside of the Arbitral Award be Abolished?” 2nd Karl-Heinz Bockstiegel Lecture of 13 September 2013 (Van Den Berg) at p. 10 http://www.arbitration-icca.org/media/4/92247683911386/media213982548067270van_den_berg_setting_aside_icsid_review_2014.pdf
- The Queen Mary/White & Case 2015 International Arbitration Survey , at p6 http://www.whitecase.com/publications/insight/2015-international-arbitration-survey-improvements-and-innovations.
- A complicating factor is that the arbitration law and the grounds for “setting aside” an award are not universally the same in states that have not adopted the Model Law, notably in England and Wales. This may have implications for arguments based on issue estoppel as to whether the same issues have been determined in both the setting aside and enforcing applications where the setting aside provisions are not Model Law based, but this is beyond the scope of this paper.
- Article 34 (3).
- See M Holmes and C Brown The International Arbitration Act 1974 A Commentary (2nd edition LexisNexis 2015) at [Sch Art 34-2] and the cases referred to therein.
- Such as under s.8 of the International Arbitration Act 1974 (Cth).
- Which are the same as those contained in Article 36 of the Model Law (relating to enforcement), in summary: (1) incapacity of a party; (2) invalid arbitration agreement; (3) lack of notice; (4) inability to present their case; (5) award on a matter not within terms of the submission to arbitration or beyond the scope of the submission to arbitration (6) tribunal not properly composed or procedure not in accordance with the parties’ agreement; (7) subject matter of the dispute not capable of settlement by arbitration under the law of the seat; or (8) the award is in conflict with the public policy of the seat.
- It is important to note that in non-Model Law countries the grounds for setting aside or annulment are under the New York Convention left primarily to the local law in the arbitral seat – Gary B Born International Commercial Arbitration Second Edition at [25.01].
-  UKSC 46 .
- The Supreme Court refused to grant a stay of the enforcement action suggesting that Dallah should have sought exequatur in France first before commencing the enforcement action.
- See Jan Kleinheisterkamp, Lord Mustill and the Courts of Tennis – Dallah v Pakistan in England, France and Utopia (2012) 75(4) The Modern Law Review at 639.
- When describing the effect of Dallah having won the jurisdictional battle before the tribunal – “Dallah starts with advantage of service, it does not also start fifteen or thirty love up” at .
- Gary Born Dallah and the New York Convention http://kluwerarbitrationblog.com/2011/04/07/dallah-and-the-new-york-convention/ .
- Jonathan Mance (post retirement from the UK Supreme Court) recently suggested that if this had been done the English court would have looked carefully at the French decision, see Arbitration – a Law unto itself? 30th Annual Lecture organised by The School of International Arbitration and Freshfields Bruckhaus Deringer 4 November 2015 https://www.supremecourt.uk/docs/speech-151104.pdf at pp4-5.
- Justice Clyde Croft and Justice James Allsop, Justice James "The role of the Courts in Australia's arbitration regime" (FCA)  FedJSchol 21 http://www.austlii.edu.au/au/journals/FedJSchol/2015/21.html .
-  FCAFC 109.
- Minmetals Germany GmbH v Ferco Steel Ltd  1 All ER (Comm) 315.
- such as where the powers of the supervisory court area so limited they cannot intervene even where there has been an obvious and serious disregard for basic principles of justice by the arbitrators or where for unjust reasons such as corruption, they decline to do so, and possibly also if they were of the view that there was a procedural defect amounting to a breach of the rules of natural justice.
-  FCA 1192.
- Van Den Berg at p26
- Van Den Berg at p25
- Van Den Berg at p24