Some Reflections of a 'Statutory Decision-maker' on Consensual International Commercial Arbitration

Presented at the Inaugural annual Chartered Institute of Arbitrators (Australia) & Grossi Florentino business lunch.

The Hon Justice John Middleton 28 July 2016

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Ladies and Gentlemen

I am delighted to be here at this luncheon to address a group of people devoted to, and interested in international commercial arbitration, enjoying the surrounds of this beautiful Mural Room of Grossi Florentino.

One never really knows the role of a lunch time speaker at functions such as these – is it to educate, to entertain, to amuse or to inform… if you think it is any of those, I fear you may be disappointed.

Before I delve into some reflections on international commercial arbitration, I hope you will forgive a little reminiscence, relevant to the Mural Room we are now enjoying.

When I was a relatively new and young barrister, I was asked to advise whether the murals in this restaurant were fixtures. My advice was to be received and acted upon by the vendor and purchaser of these premises at the time. I would like to think I take some credit for the retention of the murals in this restaurant following my advice that they were fixtures, despite the fact that they could be removed relatively easily. The view I took was that such beautiful murals were clearly intended to be annexed to the walls to create or enhance the ambiance of the restaurant, in accordance with the principles enunciated by Kaye J in Belgrave Nominees Pty Ltd and Others v Barlin-Scott Airconditioning (Aust.) Pty Ltd [1984] VR 947 (one of my few successes in a court of law as a barrister, hence my reference to it today).

There may have been a little 'sub-conscious' bias in my approach to that advice. Before the Paul Keating abolition of tax concessions for business lunches, this restaurant used to be a favourite place of many legal practitioners, and the thought of the murals being removed was one that was not to be encouraged. Sadly there are few other aspects of my life at the Bar where my advice being followed has had such tangible success.

I make one other introductory comment. Whilst I am delighted to be your guest speaker, when I came to read the flyer that was distributed for the event, the disturbing thing, from my point of view, was the monetary value put upon my speaking: $50 for members and $70 for non-members. Presumably Justices of the High Court have a higher tariff followed by Chief Justices. Nevertheless, I feel honoured to have been asked to this inaugural lunch.

I have entitled my short presentation 'Some Reflections of a 'Statutory Decision-maker' on Consensual International Commercial Arbitration'. I will return to the significance of this a little later.

There is an undoubted need for international dispute resolution outside the court room, and the rise in the use of international commercial arbitration in Australia that has taken place over recent years is responding to that need.

Competition between the providers of services for international dispute resolution will increase, and we all hope the rise in the use of international commercial arbitration will also strengthen Australia's position as a seat of arbitration. Australia's advantages in this regard will be well appreciated by the people lunching here today.

The courts are often called upon to determine questions involving arbitration proceedings in different contexts, including applications brought in aid of foreign seated arbitrations, and for the recognition and enforcement of foreign arbitral awards.

It is now accepted that it is crucial for courts to be supportive of the legislative framework governing arbitration, to understand the global context in which international commercial arbitration operates, and to be willing to preserve the integrity of the arbitral process.

In dealing with enforcement of foreign arbitral awards, one of the most critical matters for courts to appreciate is that the grounds of applications before the courts should not involve a re-hearing or re-consideration of the facts.

This appreciation has been demonstrated by the Full Court of the Federal Court in TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361 ('TCL'), where the Court made it clear that an award would not be set aside, and an enforcement would not be refused unless real unfairness was demonstrated; such unfairness being judged by the context, namely international commercial arbitration between the parties. Real unfairness should be able to be demonstrated shortly, and without a substantial analysis of the evidence. This has also been the approach, as was detailed in TCL, of the courts in New Zealand, Singapore and Hong Kong.

The Full Court said in TCL (at [54] and [55]):

… If the rules of natural justice encompass requirements such as the requirement of probative evidence for the finding of facts or the need for logical reasoning to factual conclusions, there is a grave danger that the international commercial arbitral system will be undermined by judicial review in which the factual findings of a tribunal are re-agitated and gone over in the name of natural justice, in circumstances where the hearing or reference has been conducted regularly and fairly. That danger is acute if natural justice is reduced in its application to black-letter rules, if a mindset appears that these rules can be "broken" in a minor and technical way and if the distinction between factual evaluation of available evidence and a complete absence of supporting material is blurred. All these things occurred in the argument in this case. Their presence persuaded or required the judge to spend three days reviewing the award that was the product of a 10-day reference. That should not be how such a review takes place…

An international commercial arbitration award will not be set aside or denied recognition or enforcement under Arts 34 and 36 of the Model Law (or under Art V of the New York Convention) unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness. The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition. It does not involve the contested evaluation of a fact-finding process or "fact interpretation process" or the factual analysis of asserted "reasoning failure", as was argued here.

I have reflected on various procedural ways the courts could reach timely decisions and prevent the rehearsal of all the facts and arguments that were presented before the arbitrators when the ground of procedural unfairness is raised. How about calling the arbitrators and asking them what occurred? In 1824, there was the case of Mansfield v Partington (1824) 2 L.J.K.B.(O.S.) 153 where one of the parties to an arbitration alleged the arbitrator (a gentleman at the Chancery bar) had refused to look into some accounts. The Court of King's Bench directed the arbitrator to come before the Court. Four days later he appeared in court, and stated that he had looked at those accounts. The Court stated (at 154): 'We are much obliged to the learned gentleman for his attendance. We are satisfied that justice has been done between the parties', and dismissed the application for review. That is one way to dispose of a case quickly; although the reception of the evidence may have had to do with the fact that the arbitrator was 'a gentleman of the Chancery bar'. I do not believe there were any ladies of the Chancery bar at that time.

Most dispute resolution occurs outside a court. In this way, the parties, in dealing with alternative dispute resolution, remain in control of the resolution of their own disputes. However, if there is no rule of law or no alternative to a negotiated outcome upon which the parties can rely, then the whole system of dispute resolution fails. The rule of law, enforced by the courts, ensures the integrity of the whole process.

As long as the courts appreciate that the parties have deliberately sought to have their dispute determined outside the authority of the State, then the court's role is to be readily determined. A balance must be struck between respecting the desire of the commercial parties to have their dispute determined according to their will, and the maintaining of necessary standards of fairness and competence in relation to arbitrations generally. Hence my reference to 'statutory decision-maker' and 'consensual international commercial arbitration'. A judge is appointed by statutory authority, under the Constitution, acting at all times according to the legislature's will as disclosed by Acts of Parliament. In the context of international commercial arbitration, the court has a truly supervisory role. On the other hand, the arbitrator, as appointed by the parties, is subject to the consensual arrangements the parties have reached in concluding their bargain.

Professor Adrian Briggs, Professor of Private International Law at Oxford University, observed that a principal objective of agreements for international arbitration is to 'keep the resolution of disputes as far away from the court as practicable' (see Adrian Briggs, Agreements on Jurisdiction and Choice of Law (Oxford University Press, 2008) 199). Commercially sophisticated parties make the choice to do so for their own reasons.

Of course, the parties cannot completely avoid the potential for court intervention. However, recognising the freedom of a party to bind itself in this way, the courts must be astute to allow parties to resolve their disputes by arbitration without the unnecessary interference of a court.

The current Australian judicial approach is reflected not only by the Full Court of the Federal Court in TCL, but also in the decision of the High Court in TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia & Anor (2013) 251 CLR 533 (at [40] and [111]). In that case, the High Court held that the court's power to enforce an arbitral award as if it were a judgment or order of the court did not contravene Chapter III of the Constitution. Justices Hayne, Crennan, Kiefel and Bell said (at [108]):

To conclude that a particular arbitral award is final and conclusive does no more than reflect the consequences of the parties having agreed to submit a dispute of the relevant kind to arbitration.

Similarly, French CJ and Gageler J said (at [34]):

Enforcement of an arbitral award is enforcement of the binding result of the agreement of the parties to submit their dispute to arbitration, not enforcement of any disputed right submitted to arbitration.

The shift in judicial approach in Australia has also been accompanied by amendments to the International Arbitration Act 1974 (Cth). Section 2D of the amended Act reads in part:

The objects of this Act are:

(a) to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and

(b) to facilitate the use of arbitration agreements made in relation to international trade and commerce; and

(c) to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce.

I now want to just touch upon one other matter, and that is the concept of the 'unruly horse' of public policy. As you know, recognition and enforcement of an arbitral award may be refused on the public policy ground. The ground is more commonly relied upon than most of the other grounds, but the courts have generally given the public policy ground a restricted scope. The usual approach of the courts has not been to merely conclude that an award is against public policy just because the making of the award is contrary to the law of one particular state; the courts look to international norms in public policy. Sir Anthony Mason NPJ in Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111 (at 139) described the ground as meaning '"contrary to the fundamental conceptions of morality and justice" of the forum'. However, this does not mean that the forum does not look to apply the fundamental norms from international sources, thus recognising the 'international dimension' of the enquiry (see TCL at [76]). This recognises the proper emphasis on comparative jurisprudence, so there is a uniform regional and international approach for the interpretation and application of the concept of public policy.  

I conclude by making this final observation. A regional justice system is important, and Australia can be an important part of that system. Australia itself is regarded as a neutral venue for international dispute resolution. Australia has the benefit of experienced arbitrators, and a highly regarded legal profession. Australia enjoys an open and integrity-based judicial system. The statutory decision-maker (a judge) and the consensual decision-maker (an arbitrator) must work in tandem, to facilitate and promote international trade and commerce through an efficient, fair and cost-effective dispute resolution process. Competent and careful arbitrators, and judges conscious of their proper role, will ensure this happens.

I leave you now to enjoy the rest of your lunch.