JUDICIAL SUPPORT FOR ARBITRATION IN AUSTRALIA*
By P A Keane†
One of the curious things about international arbitration is the absence of discussion of its theoretical underpinnings.  Indeed, it was only earlier this year that the first book dedicated to a discussion of the philosophy of international arbitration was published.   As Professor Reisman said, echoing the ancient philosopher’s complaint: “Yes, yes, I know it works in practice, but will it work in theory?”
This conference will be concerned with both the theory and practice of international arbitration. 
At the practical level, there can be no doubt as to the importance of international arbitration to global commerce.  Arbitration as a method of dispute resolution is seen to offer the major benefits of enforceability, neutrality, speed and expertise over court based determinations; and, because arbitration is quicker and more expert, it is likely to be cheaper than the lengthier and more elaborate proceedings in court.  It is a private proceeding which may be held in private. And international arbitration offers traders a mode of dispute resolution which is not skewed by local policies, peculiarities or prejudices.
At the theoretical level, arbitration is distinguished from the dispute resolution mechanism provided by the state, i.e. the courts, by the circumstance that, with arbitration, the dispute is resolved by a person or persons whose authority to decide is derived from the voluntary agreement of the parties to the dispute.  
Ultimately, “the scope of judicial review of arbitration awards necessarily determines the utility of the arbitration process.”  As stated by Justice Harper of the Victorian Supreme Court:
“Those who choose to resolve their disputes by invoking the provisions of the Commercial Arbitration Act must take the good with the bad.  They trade litigation, with its strict adherence to justice in accordance with law and its relatively generous rights of appeal, for a species of alternative dispute resolution with its advantages of speed and, possibly, cost – but with more limited rights of recourse to the courts thereafter.  In short, they thereby take a step which limits the power of this Court subsequently to intervene.”

On the other hand, as was said by Justice Rares of the Federal Court:
“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….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.”
No one would suggest that the commercial entities who seek the benefits offered by arbitration as a method of dispute resolution are indifferent to the quality of the decision-making process by which they have agreed to abide.  No party to a commercial dispute would be content to be bound by a dishonest or blatantly incompetent decision.  
There is, therefore, a legitimate place for some intervention by the judicial organ of states in which arbitrations are conducted or sought to be enforced to ensure that the arbitration process is conducted fairly in conformity with the reasonable expectations of the parties to the dispute.
The question, of course, is where the balance is to be struck between respect for the desire of commercial parties for speed, expertise and economy on the one hand, and the maintenance of necessary standards of fairness and competence on the other.  The UNCITRAL Model Law on International Commercial Arbitration 1985 makes general provisions in this regard; but the very generality of the terms of the Model Law means that the striking of the precise balance in any particular case is inevitably a matter for the courts in each jurisdiction where arbitration takes place.
We can, I think, see an ongoing shift in Australian Courts in the balance in favour of the view that the UNCITRAL Model Law should be interpreted to confine intervention by the court as organs of the State to the minimum necessary to ensure the integrity of the arbitral process rather than to insist on the observance of local judicial standards.
This shift in judicial approach in Australia has been accompanied by amendments to the International Arbitration Act 1974 (Cth) (“The Act”).  Section 2D of the amended Act now 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 would like to make some observations about the judicial and legislative shift in Australia.  

The Judicial Shift
The shift in judicial approach which I have mentioned is illustrated by contrasting decisions of the Courts of Appeal of Victoria and New South Wales.  These decisions were concerned with statutes which regulate domestic, rather than international, arbitration, but they address the same sorts of issues as arise in the context of international arbitration under the UNCITRAL Model Law.
Article 31 of the UNCITRAL Model Law provides that an “award shall be made in writing and shall be signed by the arbitrator”.  Article 31(2) provides that:
“The award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under article 30.”
This provision has analogies in the domestic commercial Arbitration Acts of the States. In the Oil Basins Case, the Court of Appeal of the Supreme Court of Victoria insisted that arbitrators must address each of the arguments advanced by the parties, and the evidence adduced in support of those arguments and explain why the arguments of the successful party were accepted and why the arguments of the unsuccessful party were rejected.  A failure to meet these standards meant that the award would be set aside.  
Oil Basins Incorporated (the predecessor in title to Oil Basins Limited) signed a Royalty Agreement with BHP in 1960.  The agreement granted to Oil Basins an “overriding royalty of two and one half per centum of the gross value of all hydrocarbons produced and recovered” by BHP in an area off the Victorian coast, approximately 4,450 square miles in size (“the area”).
The central issue in the dispute concerned the meaning of the expression “overriding royalty” in the context of the Royalty Agreement: was it a “title based” royalty which would be extinguished upon the surrender of the original tenement over which it was granted, or was it simply an “additional royalty” granted over the area which would apply for as long as the area was productive.
The Royalty Agreement was governed by the law of the State of New York; it was therefore necessary “for the arbitrators to make findings of fact as to the content of New York law” as it bore on the proper understanding of the expression “overriding royalty”.
The arbitrators decided the issue of interpretation against BHP, holding that the royalty survived the surrender of the original tenement.  In reaching this decision, they preferred the expert opinion of one very eminent New York lawyer over that of another. 
BHP appealed against this decision to the Supreme Court of Victoria.
The judges of the Court of Appeal of Victoria held that the arbitrators’ reasons did not adequately disclose why they preferred the evidence supporting one view of the law of New York to the alternative view.
The Victorian Court of Appeal reasoned:  a “judge is bound to enter into the issues canvassed before the court and to provide an intelligible explanation as to why the judge prefers one case over the other.  In our view, an arbitrator is subject to similar obligations”.
This strict approach equates the exercise of decision-making power conferred by private contract to the exercise of the adjudicative power of the State.  That view is problematic, both as a matter of principle and practice.
As a matter of principle, the exercise of public power to affect the rights of subjects is, in our legal tradition, regarded as subject to special constraints because that power flows from the sovereign as the fountain of justice.  The decision-making power of the arbitrator derives from the voluntary agreement of the parties.  
Judgments are the outcome of the exercise of public power.  Decision making by the courts is not merely a matter of dispute resolution between private parties.  Each decision by a court involves the compulsory application of the law of the land upon an unwilling party, namely, the losing party.  The efficacy of a court’s decision does not depend upon that party’s consent to the process.  That party and the community at large have a vital interest in the reasons given for the decisions.  The giving of a comprehensive statement of reasons why the power of the state is to be exercised against an unwilling subject is an essential requirement of the exercise of judicial power.  
In a hierarchical judicial system which observes the doctrine of stare decisis (ie. adherence to precedent) the judicial decision of a particular case involves the most concrete expression of the law of the land.  Judicial decisions affect not only the immediate parties to the dispute but all other persons in like cases.  Furthermore, the requirement of comprehensive reasons aids the exercise of the right of appeal to higher courts.
These considerations of principle concerning the public interest are not in play in the case of arbitral decisions because of the anterior agreement of the losing party to be bound by the arbitrator’s decision.
There are also practical reasons why arbitrators should not be subject to the same obligations to provide a comprehensive statement of the reasons for rejecting one case and accepting the other.    
In particular, the strict approach tends to slow the process, and to diminish the value of the expertise of the arbitrators for which the parties have bargained in opting to agree upon arbitration by an expert in a particular field of commerce rather than in the judicial art of judgment writing.
In Australia, the High Court of Australia sits at the apex of the hierarchy of appeals for all cases including commercial cases.  In this respect, it can be contrasted with the Supreme Court of the United States which is concerned only with issues which arise under Federal law.  
Because the High Court is available to resolve differences of opinion between the Courts of Appeal of the States, consistency and regularity in the administration of justice are ensured throughout the Commonwealth.   
At the level below the High Court, the values of consistency and regularity require that an appeal court of one State should follow the decision of a court of appeal of another State on a particular issue of statutory interpretation, unless the later court comes to the considered opinion that the earlier decision was “clearly wrong”.  That is obviously a very stringent test.  In Gordian Runoff Limited v Westport Insurance Corporation, the New South Wales Court of Appeal came to the opinion that this stringent test was satisfied in respect of the decision in Oil Basins.  
The principal judgment in Gordian Runoff was written by Allsop J, the President of the New South Wales Court of Appeal.  We will have the advantage of hearing from his Honour later in the course of this conference.  We will also have the advantage of hearing from Croft J of the Supreme Court of Victoria.
In the New South Wales Court of Appeal, the President, Allsop J, made the following observations about the duty of arbitrators to provide reasons for their awards. 
•	The applicable statutory provisions, the Model Law, Art 31(2) and the CA Act, s 29(1)(c), do not say that the arbitrator must deal with every substantial argument put forward by the contending parties. Nor do they state that the arbitrator should state the evidence from which he or she draws his or her findings of fact and give reasons for preferring some evidence over other evidence.
•	Subject to agreement to the contrary, there is, however, a requirement for a reasoned award in arbitration. As expressed by the Model Law, Art 31(2) and the CA Act, s 29(1)(c), it is a statement of reasons for making the award, not a statement of reasons for not making a different award. The essential requirement mandated by s 29(1)(c) and Art 31(2) is a statement of reasons for making the award that was made. This requires only a statement of factual findings and legal or other reasons which actually led the arbitrators to conclude as they did. These provisions do not, in terms, require the arbitrators to resolve other issues or deal with other matters not necessary to explain why they have come to their conclusion.
The decision of the New South Wales Court of Appeal in Gordian Runoff can be said to recognize the theoretical and practical differences between judgments of a court and arbitral awards.  
The reasons of Allsop P in Gordian Runoff also give guidance on a number of practical points concerning speed and efficiency in relation to challenges to awards in commercial arbitrations.  His Honour made the important points that: 
•	No error of law can be demonstrated by a party who sought to argue that a point which was consciously not argued before the arbitrators was wrongly decided.
•	It is incumbent on a respondent party who wishes to support the award on grounds not relied upon by the arbitrator to flag the intention to do so by a notice of contention.  This requirement is very important if the parties are to be kept on a short leash procedurally.  If that is not done the advantages of speed and certainty can be lost because a recalcitrant party may run serial challenges to an award.
Can I move to a consideration of the attitude of the courts to parallel proceedings about the same subject matter in the courts and arbitration.  
Professor Adrian Briggs, Professor of Private International Law at Oxford University, has 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.”   The well-resourced, well-advised and commercially sophisticated parties who make this choice do so for reasons which they find compelling and which national courts should respect.  This means that the courts should not be astute to allow parties to litigate disputes in court where they have promised each other to resolve their disputes by arbitration.  
Australian courts now show a strong willingness to enforce the contractual choice of the parties.  
As exemplified by the decision of the High Court in Tanning Research Laboratories Inc v O’Brien, Australian courts will give effect to agreements for international arbitration by staying proceedings in our own courts.  Further, the decision of the High Court in CSR Ltd v Cigna Insurance Australia Ltd established that Australian courts may grant injunctions, described as “anti-suit injunctions”, to restrain parties to an arbitration agreement from bringing proceedings in breach of that agreement.
The Full Court of the Federal Court of Australia has recognised that clauses referring disputes to arbitration should be read, not with a jealous eye in favour of the jurisdiction of the Court, but as effecting the most comprehensive reference to arbitration consistent with the language of the parties’ agreement.  A similar view has been taken by the New South Wales Court of Appeal.   
It has to be said that adherence to these principles of respect and support for the bargain made by the parties is not universal.  This observation is, surprisingly, true of England, not because of the views of the English judges, but as a consequence of England’s involvement in the European community.  That this is so is apparent from the decision in Allianz SpA v West Tankers Inc (notoriously, the “Front Comor”).   
The facts in the Front Comor were that in August 2000 a petrol tanker chartered by Erg Petroli SpA collided with a jetty owned by it off the Sicilian port city of Syracuse.  Erg as owner of the jetty claimed on its insurers and began arbitration proceedings against the ship owner in respect of its uninsured losses.  The arbitration commenced in London in accordance with English law, as provided for by the arbitration clause in the charterparty.  
Three years later, in July 2003, Erg’s subrogated insurers commenced proceedings against the ship owner in a Court in Syracuse seeking recovery of the sums paid to Erg under their policy.  The ship owner retaliated, understandably, seeking an anti-suit injunction in England against the insurers.  The foundation of that claim was that the insurers had been subrogated to the rights of their insured, Erg, and thus were bound by Erg’s agreement to arbitrate.
An anti-suit injunction restraining the insurers from continuing the Italian proceedings was granted at first instance.  The House of Lords would have upheld the primary judge, but their Lordships referred to the European Court of Justice in Luxembourg the question whether an anti-suit injunction restraining breach of an arbitration clause could be made in relation to a proceeding in a court of a member State of the European Union.  The ECJ reversed the House of Lords.  
The ECJ held that once the Italian Court had become seized of the proceedings (including the question of ordering a stay in favour of arbitration under the New York Convention) the courts of another member State of the European Union could not restrain the moving party from pursuing its proceedings.
The decision of the ECJ was dictated by the demands of comity between member states of the European Community.  The decision marks a retreat from the primacy of the parties’ bargain.  It is also a blow to the City of London as a centre of international arbitration.  This point was not lost on Lord Hoffmann who had said: 
“Finally, it should be noted that the European Community is engaged not only with regulating commerce between Member States but also in competing with the rest of the world.  If the Member States of the European Community are unable to offer a seat of arbitration capable of making orders restraining parties from acting in breach of the arbitration agreement, there is no shortage of other states which will.  For example, New York, Bermuda and Singapore are also leading centres of arbitration and each of them exercises the jurisdiction which is challenged in this appeal.  There seems to me to be no doctrinal necessity or practical advantage which requires the European Community handicap itself by denying its courts the right to exercise the same jurisdiction.”
To Lord Hoffman’s list of leading centres of arbitration, we might add Australia. As a seat of arbitration, Australia is not hamstrung by such embarrassing entanglements.
I turn now to discuss the legislative shift mentioned at the outset.

The Legislative Shift
The amendments passed by the Commonwealth Parliament to the International Arbitration Act 1974 (Cth) further facilitate the conduct of international arbitration in Australia and the enforcement and recognition of arbitral awards made outside Australia.
In particular, the amendments to the Act ensure that:
•	An arbitrator is liable to be removed on the grounds of doubts as to the arbitrator’s impartiality or independence only if there is a real danger of bias on the part of the arbitrator in conducting the arbitration: the mere existence of a basis for a reasonable apprehension of bias will not suffice to warrant removal. 
•	A party will not be allowed to delay proceedings by insisting on unreasonable demands in relation to the presentation of its case. 
Most importantly, under the Act, an Australian court may now decline to enforce an award only on the grounds stated in the Model Law and not on local grounds of public policy which might previously have been invoked to prevent recognition or enforcement of a foreign judgment.  
The situation in Australia is now that, by virtue of the Act, the Model Law and the New York Convention, arbitral awards are universally enforceable whereas decisions of foreign courts may not be so easily enforced.  
This more relaxed legislative regime in Australia is of a piece with the acceptance by the judiciary that the principles which constrain the exercise of the judicial power of the state should not be allowed to erode the entitlement of commercial entities to resolve their disputes by arbitration freely agreed upon.  The courts in Australia accept that their role is to facilitate, not to frustrate, the recognition and enforcement of arbitral decisions.
Conclusion
Where the transaction which gives rise to a dispute is an international one, there is great attraction to commercial parties in arbitrating their disputes in a neutral country where experienced arbitrators are available, where the courts are known for their integrity and transparency, and where the legal profession is highly regarded internationally.  
As occasions such as this conference confirm, Australia is now very much such a country.  I wish you all the best for a successful conference.