The Modern Place of Arbitration
The Modern Place of Arbitration
Celebration of the Centenary of the Chartered Institute of Arbitrators *
22 April 2015
1. It is a privilege to speak at this occasion, the centenary of the Chartered Institute of Arbitrators. This is an anniversary year: 100 years since the landing at Anzac Cove; 800 years since King John signed the foundational document for our modern conception of the rule of law, Magna Carta. Institutions tend to look better and healthier on reaching their centenaries than human beings. I am sorry that I cannot read a telegram from the Queen to you tonight. However, Prince Philip revealed that he always begins a speech by saying “it is my invariable custom to say something flattering to begin with so that I shall be excused if, by chance, I put my foot in it later on”. I will see if that prescription works.
2. The Chartered Institute of Arbitrators was founded in 1915. Its first council comprised eminent architects, surveyors, engineers and accountants, who shared the aim of raising the status of arbitration “to the dignity of a distinct and recognised position as one of the learned professions”. Conspicuously, or perhaps forbiddingly, two of the founders were solicitors but the Institute’s website has done a good job in concealing whether they had any positions on the first elected council. In 1990, the Institute became a charitable body with the main object of promoting and facilitating the determination of disputes by arbitration and alternative means of dispute resolution, that is, resolution other than by courts. Its current membership stands at over 13,000 individuals, who support the promotion of non-court dispute resolution, training and education of arbitrators and public access to arbitration schemes around the world.
The modern place of arbitration
3. Today, the place of arbitration in resolving commercial disputes is firmly secured. Like most countries, Australia recognises and enforces both agreements to arbitrate and arbitral awards under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the 1985 UNCITRAL Model Law on International Commercial Arbitration. Both the Convention and Model Law form part of Australia’s domestic law, and the International Arbitration Act 1974 (Cth) grants the Federal Court and the Supreme Courts of each State and Territory jurisdiction to give them effect.
4. Arbitration is an essential mechanism that underpins international commercial relationships. It enables business to be done between parties based in different countries with different legal systems that, of themselves, provide no ready means to enforce legally binding obligations. The parties can choose in their contract first, the law that will govern their relationship, secondly, the law of the seat that will govern any arbitration in which they engage and thirdly, the procedural rules that will regulate any arbitration. And, any arbitral award that is made in the arbitration will be readily enforceable against the losing party or its assets, wherever they can be found in any States Party to the Convention or Model Law.
5. This efficient system eschews the uncertainty of a claimant having to sue its debtor or defaulting contractual counterparty in a jurisdiction where the latter can be found, or in trying to enforce a court judgment obtained in another legal system, the validity or efficacy of which may not be recognised in the only place that matters – where enforcement has to occur. Instead, the court of the seat of an international arbitration will enforce the agreement to arbitrate, and the domestic court in which the losing party or its assets can be found will enforce any award made in the arbitration.
6. The Convention and Model Law are vital servants of international trade and commerce. About 10% of the world’s maritime trade by volume is carried into and out of Australia by sea. Our country must develop greater international recognition of, and support for, efficient, skilled and internationally acceptable arbitrators who can bring their commercial abilities to bear in resolving disputes. With so much of world trade focused in the Asia-Pacific region, the need for us to develop a reputation as a centre for international commercial arbitration is manifest. Our nation has a very long history of impartial, independent and incorruptible courts with a well-regarded jurisprudence. These are capable of providing, and do in fact provide, support to the conduct of international arbitrations.
7. In international trade and commerce, it is critical that the courts respect and enforce arbitration agreements where they exist in accordance with, in particular, the Convention, Model Law and legislation designed to give effect to it, such as the International Arbitration Act. This is because in international trade and commerce, the parties generally will not wish to be subject to, for example, the serendipity of where a ship may be arrested, an action is begun or damage occurred to determine a forum of any litigation between them or the substantive law to be applied to their dispute.
8. The parties will be conscious that an accident or fortuity may occur at any point in a voyage or flight and very different legal results may flow depending on which law and which forum determine their dispute. It is for this reason that arbitration clauses invoking arbitration in London under English law have been a popular recourse for parties in international trade for over a century. Nowadays other centres of commercial arbitration, including Australia, are recognized as providing sound and fair fora and laws for the resolution of disputes in international trade or commerce.
9. The widespread recognition of the Convention and Model Law is a product of the efforts of the international business community. In general these instruments serve the interests of commerce by limiting opportunities for courts and, of course, lawyers, to interfere with international arbitral process or awards. This represents a deliberate shift away from the earlier role of courts, and of English courts in particular, in supervising international arbitrations. Prior to the mid-1970s, English courts frequently developed the law of contract by examining arbitral awards in London arbitrations, notably in shipping cases. There are many decisions of the House of Lords about the correct way to interpret provisions in standard form charterparties and other common contractual documents used in international commerce.
10. As the benefits of international arbitration under the Convention, and later the Model Law, became more apparent, the United Kingdom Parliament progressively narrowed the grounds of challenge over the twenty years up to the mid-1990s. The same narrowing occurred in Australia, and internationally. This led to the substantive sidelining of the courts in settling the correct interpretation of most of the very significant standard form contracts used in international trade.
11. The nineteenth century common law rule was that an arbitral award could be set aside for error of law on the face of the award, except where the parties had agreed to submit the question of law to the arbitrator. That rule had by 1979 been described by Lord Diplock as an anomaly of legal history that still then survived in New South Wales but had been supplanted by the Arbitration Act 1979 (UK).
12. Courts have an important role to play which is complimentary to arbitration. Courts systematise and explain the legal principles applicable in particular, as well as frequently occurring, situations faced by those involved in commerce. This gives guidance to the broader international commercial community concerning the incidents of their actual or proposed contractual relationships. Arbitrations cannot offer that perspective because they are conducted confidentially. And, no matter how eminent the arbitrator(s) may be, an award in one arbitration does not bind any other arbitrator or relationship between contracting parties. One possible weakness of universal resort to arbitration may be the loss of certainty.
13. Australian courts recognise that arbitration clauses should be read, and thus construed, as liberally as possible, as affirmed by the Full Court of the Federal Court in Comandate Marine Corp v Pan Australia Shipping Pty Ltd per Allsop J. That approach won the endorsement of Lord Hope of Craighead in Fiona Trust & Holding Corporation v Privalov. There his Lordship referred to it as being firmly embedded in the law of international commerce. That theme was re-endorsed by Allsop P in United Group.
14. The Parliament has recognised the importance of international arbitration in stating the objects of the International Arbitration Act, in s 2D, as including the facilitation of first, international trade and commerce by encouraging the use of arbitration as a method of resolving disputes and, secondly, the recognition and enforcement of arbitral awards made in relation to international trade and commerce. As Allsop CJ, Middleton J and I explained in Elders International Australia Pty Ltd v Beijing BE Green Import & Export Co Ltd, the Court under s 39, in exercising its enforcement powers under the Act or the Model Law, must have regard to the objects of the Act and the fact that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes and that awards are intended to provide certainty and finality.
15. The result is that both Australia’s International Arbitration Act and other international arbitral instruments offer limited grounds on which to challenge the judicial enforcement of agreements to submit disputes to arbitration, or the awards made in arbitration. The limited circumstances in which Australian courts permit challenges to arbitral awards include the following:
• the agreement was not valid under its governing law;
• the challenging party was under a legal incapacity at the time that the original agreement was made, was not given proper notice of the arbitration or was not able to present his, her or its case in it;
• the composition of the arbitral panel or its procedure did not comply with the agreed governing law;
• the award was not yet binding on the parties or had been set aside or suspended by a competent authority in which, or under the law of which, the award was made;
• the domestic Australian law does not permit such a dispute to be resolved by arbitration; or
• the enforcement of the award would be contrary to public policy, for example, because the award had been induced or affected by fraud or corruption, or a breach of the rules of natural justice occurred in connection with the making of the award.
16. In Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2), Foster J considered the purpose of these narrow grounds of challenge. He said that:
arbitration facilitates international trade and commerce by providing an efficient and certain dispute resolution process to commercial parties. If the enforcement of awards is to be subjected to the vagaries of the entire domestic public policy of the enforcement jurisdiction, there is the potential to lose all of the benefits of certainty and efficiency that arbitration provides and which international traders seek.
17. The decision of the High Court of Australia in TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia demonstrated both the distinction between arbitration and the exercise of judicial power, and the modern legislative intention that, subject to the very narrow grounds of challenge, the law and the courts should give full effect to the parties’ agreement to submit their dispute or differences to arbitration or other agreed dispute resolution mechanisms.
The wider ADR context
18. The Courts have been increasingly willing to enforce a wider range of ADR processes. Thus in 2009 the Court of Appeal of the Supreme Court of New South Wales considered a dispute resolution clause that required senior representatives of each party to a contract to meet and undertake ‘genuine and good faith negotiations’ in respect of matters in dispute, and that if these did not resolve the dispute then it would be referred to mediation and, in turn, arbitration. Allsop P said:
The recognition of the important public policy in the interests of the efficient use of public and private resources and the promotion of the private interests of members of the public and the commercial community in the efficient conduct of dispute resolution in litigation, mediation and arbitration in a fair, speedy and cost efficient manner attends all aspects of dispute resolution
The public policy in promoting efficient dispute resolution, especially commercial dispute resolution, requires that, where possible, real and enforceable content be given to clauses (such as the negotiation, mediation and the arbitration clauses) to encourage approaches by, and attitudes of, parties conducive to the resolution of disputes without expensive litigation, arbitral or curial.
19. Lest this be thought of as an antipodean approach, I hasten to add that Teare J warmly endorsed it in the Commercial Court in London, as cogent reasoning to support his Lordship’s even wider view of its enforceability of a contractual obligation to “seek to resolve a dispute or claim by friendly discussion”: Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd. Teare J said:
Where commercial parties have agreed a dispute resolution clause which purports to prevent them from launching into an expensive arbitration without first seeking to resolve their dispute by friendly discussions, the courts should seek to give effect to the parties’ bargain. Moreover, there is a public interest in giving effect to dispute resolution clauses which require the parties to seek to resolve disputes before engaging in arbitration or litigation.
20. His Lordship also drew support for his approach from recent decisions of the Singapore courts, including its Court of Appeal. In the end, Teare J concluded:
Enforcement of such an agreement when found as part of a dispute resolution clause is in the public interest, first, because commercial men expect the court to enforce obligations which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and time consuming arbitration.
21. Of course, not all commercial disputes lend themselves to friendly, or sometimes any, discussions. However, the growth in utilisation of mediation and other ADR mechanisms in the last 25 years has opened this new vista to consideration by the courts.
National Corporate Practice Areas
22. I should now mention the Federal Court of Australia’s recently introduced National Court Framework. The Federal Court’s caseload has been divided between a number of National Practice Areas, which reflect the major subject matter areas of the Court’s jurisdiction. Specific judges have been assigned to each NPA, so that as matters are filed they are immediately docketed to a specialist judge for case management and disposition. The purpose of this structure is to identify the real issues in a dispute early, and to enable the specialist judges and the parties to deal with those issues efficiently. A guiding principle of case management under the National Court Framework is that judges will work actively with the parties to encourage exploration of early dispute resolution through mediation.
23. International commercial arbitration is itself a National Practice Area within the Court. This recognition reflects, at an institutional level, the Court’s support for the role of arbitration and other forms of dispute resolution. In New South Wales and the ACT Justices Foster and Gleeson are specialist judges for general international commercial arbitration, and I am the specialist judge for admiralty arbitration matters within the sub-area. Similar arrangements apply in the other States and Northern Territory.
Establishment of a regional maritime court and centre
24. I want to turn, finally, to an initiative being led by Chief Justice Allsop to explore the establishment of a regional maritime court and centre. A committee consisting of Justice Neil McKerracher, Professor Sarah Derrington (the Dean of Law of the University of Queensland), Tony Tesoriero (the Court’s national Admiralty and Maritime Registrar), and myself is seeking ways of developing this idea to fruition.
25. It should be possible, with input from industry, to develop a broad standard form dispute resolution clause for use in international maritime contracts. Such a clause would provide that the parties agree to submit any dispute arising under their contract to resolution using a mechanism that they would either agree upon or have the Court select (such as judicial resolution, or an order that the dispute be determined by arbitration, a referee or a mediator). If the parties could not agree on the mechanism, then the clause would provide that the dispute be arbitrated, with the seat in Australia, under the auspices of the Australian Maritime Transport and Arbitration Commission which could choose the appropriate rules at the time of notification of the dispute.
26. The Federal Court would hope to have available a range of industry experts to be selected as appropriate, who could be nominated as arbitrators, referees or mediators. The development of such a resource may be able to be achieved if industry bodies such as the Chartered Institute of Arbitrators, the Australian Maritime Safety Authority, Ports Australia, the Nautical Institute, the Institute of Chartered Shipbrokers, Chartered Ship Surveyors, Engineers, P&I clubs and insurers were interested and willing to assist the Court to identify one or more suitably expert professionals whom the Court could consider appointing under the proposed clause. Ideally, every professional organisation that has expertise in the maritime industry would identify, or be able to nominate, appropriate persons who could be referees, arbitrators, assessors, expert neutral evaluators or even witnesses or consultants, to help the parties to resolve their dispute.
27. The Court would value industry feedback and ideas about how best to attract parties involved in international trade and commerce to select Australia in their agreements as a seat for international dispute resolution.
28. Can I conclude where I began in congratulating the Institute on attaining this milestone of 100 years of existence. Its professional, arbitral and educational activities have served the international and Australian commercial community well.
29. I can say without fear of contradiction that I will not be around to help celebrate the bicentenary, but there is every prospect that this institution’s vitality will support such longevity.
* A paper presented to the Chartered Institute of Arbitrators on 22 April 2015 in celebration of its Centenary at Sydney.
** A judge of the Federal Court of Australia, an additional judge of the Supreme Court of the Australian Capital Territory, President of the Judicial Conference of Australia and a member of the Board of Management of the Australasian Institute of Judicial Administration. The author acknowledges the assistance of his associate, Nikila Kaushik, in the preparation of this paper. The errors are the author’s alone.
 see TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia (2013) 251 CLR 533 at 572  per Hayne, Crennan, Kiefel and Bell JJ
 Max Cooper & Sons Pty Ltd v University of New South Wales  2 NSWLR 257 at 261 A-B; see TCL 251 CLR at 557  per French CJ and Gageler J
 (2006) 157 FCR 45 at 87 
 Finn and Finkelstein JJ agreeing
  4 All ER 951 at 962–963 ;  1 Lloyd’s Rep 254
 74 NSWLR at 622
 s 2D(a) and (c)
  FCAFC 185 at , -, 
 (2012) 201 FCR 535 at 555 
 (2013) 251 CLR 533
 United Group Rail Services Ltd v Rail Corporation Ltd (2009) 74 NSWLR 618 at 640 ; Ipp and Macfarlan JJA agreeing
  1 WLR 1145 at 1160-1161 –
  1 WLR at 1162-1163 –; HSBC Institutional Trust Services (Singapore) Ltd v Toshin Development Singapore Pte Ltd  4 SLR 378 at –
  1 WLR at 1164