International Arbitration in Australia: Legal and Institutional Framework

International arbitration in Australia is governed by the International Arbitration Act 1974 (Cth)(“IAA”) as amended in 2010, 2015 and 2018. The legal and institutional framework related to arbitration in Australia has been significantly amended over the past decade as part of a wide-reaching arbitration reform aimed at promoting Australia as an attractive regional seat for international arbitration. The Commonwealth of Australia is of course a federation, with six States and two Territories,[1] where each State and Territory represents a separate jurisdiction. Domestic arbitration is governed by the Commercial Arbitration Acts (“CAA”) of each State and Territory. As a further part of arbitration reform in Australia, all States and Territories adopted a uniform statute for domestic arbitration based on the UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL Model Law”). This resulted in a fairly uniform, harmonious and modern regime governing both international and domestic arbitrations in Australia.

Australian International Arbitration Act – An Overview

The IAA regulates, at the federal level, the recognition and enforcement of foreign arbitral awards and the conduct of international commercial arbitrations in Australia. The IAA directly incorporates the UNCITRAL Model Law and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (”New York Convention”). The structure of the IAA is as follows:

• Part I – Preliminary – provides for certain general provisions;
• Part II –Enforcement of foreign arbitration agreements and awards – regulates the recognition and enforcement of foreign arbitral awards and incorporates the provisions of the New York Convention (IAA, Section 8);
• Part III – International Commercial Arbitration – regulates the conduct of international commercial arbitration in Australia, at the same time incorporating the UNCITRAL Model Law with its 2006 amendments (IAA, Section 16 (1)).[2]

International vs. Domestic Arbitration in Australia

Pursuant to the IAA, an arbitration is considered international if at least one of the following applies:[3]

(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or

(b) one of the following places is situated outside the State in which the parties have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;

(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or

(c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.

Accordingly, it is possible for an arbitration between two Australian entities to also be regulated by the international regime, should they agree so.

Domestic arbitrations in Australia are governed by the CAA of each State and Territory, which are, however, virtually the same laws, all based on the UNCITRAL Model Law. An arbitration is domestic if at the time of the conclusion of the arbitration agreement the parties had their place of business in Australia and if it is not an arbitration to which the UNCITRAL Model Law, as given effect by the IAA, applies.

The relevant State and Territory legislation in Australia include:[4]

• Australian Capital Territory: Commercial Arbitration Act 2017 (ACT).
• New South Wales: Commercial Arbitration Act 2010 (NSW).
• Northern Territory: Commercial Arbitration (National Uniform Legislation) Act 2011 (NT).
• Queensland: Commercial Arbitration Act 2013 (Qld).
• South Australia: Commercial Arbitration Act 2011 (SA).
• Tasmania: Commercial Arbitration Act 2011 (Tas).
• Western Australia: Commercial Arbitration Act 2012 (WA)
• Victoria: Commercial Arbitration Act 2011 (Vic)

For domestic arbitrations, the parties may also agree to the right of appeal against the arbitral award on a question of law. In the absence of the parties’ agreement, no such right of appeal exists and recourse against the award is limited to those matters prescribed in the UNCITRAL Model Law. No right of appeal is provided for in international arbitrations under the IAA.

Mandatory Provisions under the IAA

The IAA provides the parties and arbitrators with significant flexibility to tailor arbitration procedures to their own needs. The IAA does not specify, explicitly, which provisions are mandatory under Australian law. A general consensus exists, however, that there are certain, mandatory principles which nevertheless have to be respected. These include, for instance:[5]

• A duty of Australian courts to stay any proceedings and refer them to arbitration upon application of one party to the arbitration agreement, as provided by the IAA, Section 7(2);
• A duty of Australian courts to recognize foreign arbitral awards as if they were orders of State or Territory courts or the Federal Court of Australia, subject to certain exceptions as provided in the IAA, Section 8;
• Equal treatment of the parties, as each party shall be treated with equality and given a reasonable opportunity to present its case (the UNCITRAL Model Law, Article 18, as given effect by the IAA);
• The parties have to be given sufficient advance notice of any hearing and of any meeting of the tribunal for the purposes of the inspection of goods, other property or documents, as provided in Article 24 (2) of the UNCITRAL Model Law, as given effect by the IAA).

In addition, Australian courts also require arbitration proceedings to meet the standards of “natural justice“,[6] as held in Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214. Australian courts may also refuse enforcement of a foreign arbitral award if it is contrary to Australian public policy, as provided in Section 8(7)(b) of the IAA. A foreign award is considered contrary to Australian public policy if the principles of natural justice have not been respected (Section 19(2) of the IAA). However, as held in Emerald Grain v. Agrocorp [2014] 314 ALR 299, where the Honourable Judge Pagone J dismissed the application, the court must be vigilant not to allow a party to run a merits review invoking the public policy exception. As Judge Pagone J held, the court’s role to ensure compliance with natural justice is supervisory only.[7]

Arbitration Agreements in Australia

Section 16(2) of the IAA, which gives the UNCITRAL Model Law force of law, provides that an “arbitration agreement” has the meaning given in Option 1 of Article 7 of the UNCITRAL Model Law, i.e., “an agreement by the parties to submit to arbitration disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” Option 1 of Article 7 of the UNCITRAL Model Law further provides that the arbitration agreement has to be in writing.

For the purpose of enforcing foreign arbitration agreements, the IAA also adopts the definition of an “arbitration agreement” from the New York Convention, Article II (1), which provides that an arbitration agreement is “an agreement in writing under which the parties undertake to submit to arbitration any disputes arising from a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration”.

Therefore, the only formal requirement for an arbitration agreement to be valid under Australian law is that is has to be in writing. As further provided in Section 3(5) of the IAA, a reference in a contract to any document containing an arbitration clause also constitutes an arbitration agreement, provided that the reference is such as to make the clause part of the contract. As held in Warner Bros. Feature Productions Pty v. Kennedy Miller Mitchell Films Pty Ltd [2018] MSWCA 81, ordinary rules of contractual interpretation apply to determine if an arbitration clause is incorporated into a contract.

Arbitrability of Disputes in Australia

The starting position of Australian courts is that any claim for relief of a kind proper for determination of a court is considered arbitrable, as held in Elders CED v. Dravco Corp [1984] 59 ALR 206. The dispute must also fall under the scope of the arbitration agreement, as held by the High Court of Australia in Tanning Research Laboratories Inc. v. O’Brien [1990] FC 90/008 (“to be arbitrable, the controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power”). The parties therefore cannot agree to submit to arbitration disputes that are not arbitrable, as confirmed in WDR Delaware Corporation v Hydrox Holdings Pty Ltd [2016] 245 FCR 452).

Even though there is some uncertainty as to which issues are not arbitrable under Australian law, matters which are not arbitrable traditionally include criminal offences, divorce, custody of children, property settlement, wills, employment grievances, some intellectual property disputes, competition law disputes and certain bankruptcy and insolvency matters[8] (even though in WDR Delaware Corporation v Hydrox Holdings Pty Ltd the Federal Court of Australia ruled that matters related to the winding up of a company could be determined by arbitration).

Certain legislative acts also explicitly provide which kind of disputes are not arbitrable, such as, for instance:

• Carriage of Goods by Sea Act 1991 under which arbitration agreements included in bills of lading or similar documents relating to the carriage of goods to or from Australia are void, unless the agreement provides that the arbitration must be conducted in Australia;
• Insurance Contracts Act – Section 43(1), which provides that contracts of insurance cannot provide for an arbitration clause and any such agreement would be void.

Arbitrators

The procedure and requirements for the appointment, removal and challenge of arbitrators provided under the IAA are the same as provided in the UNCITRAL Model Law. The parties are free to select any number of arbitrators (Article 10(1) of the UNCITRAL Model Law). Failing such determination, the default number is three arbitrators (Article 10(2) of the UNCITRAL Model Law). The parties are also free to agree on a procedure for the appointment of an arbitrator (Article 11(2) of the UNCITRAL Model Law). Failing such agreement, Article 11(3) of the UNCITRAL Model Law provides that the court or other competent authority can appoint an arbitrator as follows:

     (a)        in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators thus appointed shall appoint the third arbitrator; if a party fails to appoint the arbitrator within thirty days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within thirty days of their appointment, the appointment shall be made, upon request of a party, by the court or other authority specified in article 6;

(b)        in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator, he shall be appointed, upon request of a party, by the court or other authority specified in article 6.

The court’s power to appoint arbitrators pursuant to the IAA has been delegated to the Australian Centre for International Commercial Arbitration, as prescribed by the International Arbitration Regulations 2011. This is useful, as courts may be bypassed for ad hoc arbitrations, speeding the constitution of the arbitral tribunal.

Regarding arbitrators’ independence and impartiality, arbitrators are required to disclose any circumstances likely to give raise to a justifiable doubt as to their independence or impartiality (Article 12 (1) UNCITRAL Model Law). Pursuant to Section 18A(1) of the IAA, “justifiable doubt” exists only if there is a real danger of bias. The parties are also free to agree on a procedure for the challenge and removal of arbitrators. Failing such agreement, the procedure provided in Article 13(2) of the UNCITRAL Model Law applies.

Arbitration Institutions in Australia

The Australian Centre for International Commercial Arbitration (“ACICA“) is the most prominent institution for international arbitration in Australia. ACICA was established in 1985 as an independent, non-profit organization, with the objective of promoting and facilitating the efficient resolution of commercial disputes throughout Australia and internationally. ACICA has its own set of arbitration rules, the ACICA Rules 2016 and ACICA Expedited Arbitration Rules 2016, both of which came into effect on 1 January 2016. Both rules are based on the UNCITRAL Arbitration Rules but fail to distinguish between domestic and international arbitration even though, in practice, ACICA administers international arbitrations.

Sydney and Melbourne operate as the main centres for international arbitration. Other notable institutions includes the Institute of Arbitrators and Meditators Australia (“IAMA”), established in 1975 in Sydney, with a primary focus on domestic arbitrations.

Another positive development, as part of a wider arbitration reform in Australia, was the opening of international dispute resolution facilities in Sydney in 2010. The Australian Disputes Center (“ADC”), modelled upon Maxwell Chambers in Singapore, provides world class dispute resolution facilities and services. Other notable international dispute facilities include the Melbourne Commercial Arbitration and Mediation Centre (“MCAMC”) and the Perth Centre for Energy and Resources Arbitration in Western Australia.

Conclusion

Thanks to the comprehensive legal reform of arbitration laws in Australia over the past decade, followed by numerous decisions of Australian courts restating its pro-arbitration policy, international arbitration is continuing to rise in Australia. Naturally, COVID-19 has had a significant impact on dispute resolution in Australia, especially by introducing virtual hearings and online platforms, which have now became a norm rather than an exception. However, this sudden shift to entirely virtual arbitrations may have positive implications for the future of the arbitration in Australia. With virtual hearings becoming the norm, Australia might finally overcome the main hurdle in establishing itself as a global centre for international arbitration – its distant geographical location – and rise to the level of its main regional competitors such as Singapore or Hong Kong.

• Nina Jankovic, Aceris Law LLC

[1]              The Commonwealth of Australia is composed of six States –  New South Wales, Queensland, South Australia, Tasmania, Victoria, and Western Australia, and two major mainland Territories – the Australian Capital Territory and the Northern Territory.

[2]              Australia became one of the first countries to adopt the UNCITRAL Model Law in 1974 to govern international arbitrations.

[3]              IAA, Schedule 2, UNCITRAL Model Law, Article 1(3).

[4]              See https://acica.org.au/commercial-arbitration-acts/

[5]              Arbitration procedures and practice in Australia: overview, available at: https://uk.practicallaw.thomsonreuters.com/1-618-2164

[6]              Arbitration procedures and practice in Australia: overview, available at: https://uk.practicallaw.thomsonreuters.com/1-618-2164

[7]              Emerald Grain v. Agrocorp [2014] 314 ALR 299, paras. 10, 16.

[8]              Arbitration procedures and practice in Australia: overview, available at: https://uk.practicallaw.thomsonreuters.com/1-618-2164