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Powerpoint for New York State Bar Lecture

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Powerpoint used in the lecture on 29 October 2014 to the New York State Bar presented at Hinshaw & Culbertson on the Enforcement of International Arbitral Awards in the Asia Pacific. An event supported by the International Subcommittees for International Arbitration, Insurance and Reinsurance as well as the Chinese American Bar Association

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Powerpoint for New York State Bar Lecture

  1. 1. The Enforcement of Foreign Arbitral Awards in the Asia Pacific Talk by: Laina Chan, Barrister Nine Wentworth Chambers, Sydney Melbourne TEC Chambers
  2. 2. A case study: Astro v Lippo • Failed satellite television joint venture between Indonesian conglomerate, Lippo and companies within a Malaysian media group, Astro. • Lippo commenced proceedings in the Indonesian courts. • Astro took the position that the Indonesian court proceedings were in breach of the arbitration clause in the joint venture agreement and commenced arbitration proceedings in Singapore. • Tribunal awarded Astro US$300 million in damages, interest and costs. • In late 2010 Astro commenced enforcement proceedings for the awards in Indonesia, Malaysia, Hong Kong and Singapore.
  3. 3. A case study: Astro v Lippo Indonesia • Astro failed to enforce the awards against Lippo in Indonesia. • The Indonesian Supreme Court dismissed on grounds that the awards were: i. contrary to public order ii. interfered with Indonesian judicial process, and iii. violated the sovereignty of Indonesia
  4. 4. A case study: Astro v Lippo Hong Kong • In December 2010 judgment was entered in terms of the award in the Hong Kong High Court. • As a result of the Court of appeal decision of Singapore of 31 October 2013, Lippo has been granted a stay of execution on the Garnishee Order Absolute in Hong Kong. • In the absence of a judgment debt to form the basis of the Garnishee Order, the HK court held that was the just outcome.
  5. 5. A case study: Astro v Lippo Singapore • In March 2011 Astro obtained order for the enforcement of the awards in Singapore. • Lippo sought to have these orders set aside on the grounds that there had been no valid service of enforcement orders under Indonesian law and that there had been no arbitration agreement between Lippo and the Astro Joinder Parties who were not parties to the agreement. • These grounds were rejected by the Singapore High Court and Lippo appealed.
  6. 6. A case study: Astro v Lippo Singapore (cont.) • The Court of Appeal (the ultimate court in Singapore) overturned the decision of the High Court. • Court found that there is a “choice of remedies” available to a party seeking to challenge an arbitral award on the grounds of jurisdiction. • Establishes that a party seeking to object to an arbitral award has options when challenging an award either at the stage of setting aside or while resisting its enforcement. • Brings Singapore back inline with other jurisdictions that employ “choice of remedies” in accordance with UNICTRAL Model Law.
  7. 7. Hong Kong Section 3 – Object and principles of this Ordinance Arbitration Ordinance of 2011 (Cap.609) (1) The object of this Ordinance is to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense. (2) This Ordinance is based on the principles — (a) that, subject to the observance of the safeguards that are necessary in the public interest, the parties to a dispute should be free to agree on how the dispute should be resolved; and (b) that the court should interfere in the arbitration of a dispute only as expressly provided for in this Ordinance.
  8. 8. Hong Kong Arbitration Ordinance of 2011 (Cap.609) Section 86 – Refusal of enforcement of arbitral awards (1) Enforcement of an award referred to in section 85 may be refused if the person against whom it is invoked proves — (a) that a party to the arbitration agreement was under some incapacity (under the law applicable to that party); (b) that the arbitration agreement was not valid — (i) under the law to which the parties subjected it; or (ii) (if there was no indication of the law to which the arbitration agreement was subjected) under the law of the country where the award was made; (c) that the person — (i) was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings; or (ii) was otherwise unable to present the person’s case; (d) subject to subsection (3), that the award — (i) deals with a difference not contemplated by or not falling within the terms of the submission to arbitration; or (ii) contains decisions on matters beyond the scope of the submission to arbitration; (e) that the composition of the arbitral authority or the arbitral procedure was not in accordance with — (i) the agreement of the parties; or (ii) (if there was no agreement) the law of the country where the arbitration took place; or (f) that the award — (i) has not yet become binding on the parties; or (ii) has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.
  9. 9. Hong Kong Arbitration Ordinance of 2011 (Cap.609) Section 86 – Refusal of enforcement of arbitral awards (cont.) (2) Enforcement of an award referred to in section 85 may also be refused if — (a) the award is in respect of a matter which is not capable of settlement by arbitration under the law of Hong Kong; (b) it would be contrary to public policy to enforce the award; or (c) for any other reason the court considers it just to do so. (3) If an award referred to in section 85 contains, apart from decisions on matters submitted to arbitration (arbitral decisions), decisions on matters not submitted to arbitration (unrelated decisions), the award may be enforced only in so far as it relates to the arbitral decisions that can be separated from the unrelated decisions. (4) If an application for setting aside or suspending an award referred to in section 85 has been made to a competent authority as mentioned in subsection (1)(f), the court before which enforcement of the award is sought (a) may, if it thinks fit, adjourn the proceedings for the enforcement of the award; and (b) may, on the application of the party seeking to enforce the award, order the person against whom the enforcement is invoked to give security. (5) A decision or order of the court under subsection (4) is not subject to appeal.
  10. 10. Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKC 205, 1 HKLRD 665 (H.C.F.A) • Polytek, Hong Kong based company sold defective equipment to Hebei, a Chinese company who then on sold it. • Hebei referred the matter to arbitration before the CIETAC and the tribunal found in their favour. • Polytek applied to the People’s Court in Beijing to have the award set aside but failed. • Hebei was granted leave in Hong Kong to enforce the award. • Polytek appealed on the grounds that there had been a serious breach of natural justice, bias on the part of the chief arbitrator and a violation of public policy. • Polytek’s appeal was successful and Hebei appealed to the Court of Final Appeal.
  11. 11. Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKC 205, 1 HKLRD 665 (H.C.F.A) • The Court of Final Appeal reversed the decision of the Court of Appeal and enforced the award. • An unsuccessful party may challenge the enforcement of awards in two ways: i. by applying to the courts at the seat of arbitration to set aside an award, or; ii. by waiting for the successful party to attempt to enforce the award and raising an objection at that stage • Parties are not bound to elect between these two remedies.
  12. 12. • The refusal of one jurisdiction (other than seat of arbitration) to enforce the award and in fact annul it will not necessarily lead to a refusal to enforce an award by the Courts of Hong Kong. • In this case, a Cayman Islands company failed to have award enforced in Indonesia and the matter was subsequently heard before the Hong Kong Court of First Instance. • The Hong Kong court considered that the refusal of Indonesian courts to enforce and in fact annul the award should have no effect on their decision. Karaha Bodas Co LLC v PerusahaanPertambangan Minyak dan Gas Bumi Negara (Pertamina) (No. 2) [2003] 4 HKC 488
  13. 13. Singapore International Arbitration Act (Cap. 143A) Section 8 – Authorities specified for purposes of Article 6 of Model Law (1) The High Court in Singapore shall be taken to have been specified in Article 6 of the Model Law as courts competent to perform the functions referred to in that Article except for Article 11(3) and (4) of the Model Law. (2) The Chairman of the Singapore International Arbitration Centre shall be taken to have been specified as the authority competent to perform the functions under Article 11(3) and (4) of the Model Law. (3) The Chief Justice may, if he thinks fit, by notification published in the Gazette, appoint any other person to exercise the powers of the Chairman of the Singapore International Arbitration Centre under subsection (2).
  14. 14. Singapore International Arbitration Act (Cap. 143A) Section 24 – Court may set aside award Notwithstanding Article 34(1) of the Model Law, the High Court may, in addition to the grounds set out in Article 34(2) of the Model Law, set aside the award of the arbitral tribunal if — (a) the making of the award was induced or affected by fraud or corruption; or (b) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.
  15. 15. • Government of the Republic of Philippines applied, under s 24 of the International Arbitration Act and Art 34 of the UNICTRAL Model Law set out in the First Schedule to the IAA to set aside the award made in arbitration between them and Philippine International Air Terminals. • The court held that an application to set aside an award is not a review on the merits of the decision. • This is by virtue of the exclusivity of the grounds for setting aside awards in Art 34 of the Model Law, except for the narrow grounds set out in s 24 (Singapore) IAA. Government of the Republic of the Philippines v Philippine International Air Terminals Co Inc [2007] 1 SLR 278
  16. 16. • Dispute between Newspeed and Citus was submitted to arbitration in China and the tribunal delivered an award in favour of Newspeed. • Newspeed applied to enforce the award in Singapore under the International Arbitration Act (Cap. 143A). • Prior to the Astro decision there was tension as to whether an award debtor may resist an award not only by bringing an action at the seat of the award, but also by fighting an application by an award creditor to enforce an award. • Court held that these options were ‘alternatives and not cumulative’. • Indicates a strict approach to the finality of awards and limits the possibility of re-litigation but in practice this approach may be thwarted by delay tactics and asset transfers. Newspeed International v Citus Trading Pte Ltd [2003] 3 SLR 1
  17. 17. • PT Asuransi Jasa Indonesia appealed against the decision of the High Court dismissing an application for an order to set aside an arbitral award that was the result of an arbitration involving the Dexia Bank SA. • Singapore Court of Appeal held that there is no appeal for an error of law or fact made in an arbitral decision where the seat was Singapore. • The court also affirmed a negative jurisdictional ruling does not constitute an arbitral award. • Affirms the finality of arbitral awards. PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR 597
  18. 18. Indonesia Arbitration Law, Law No. 30 of 1999 International Arbitration Awards will only be recognised and may be enforced in the jurisdiction of the Republic of Indonesia if they fulfil the following criteria: (a) the International Arbitration Award is rendered by an arbitrator or arbitration panel in a country which is bound to the Republic of Indonesia by a bilateral or multilateral treaty on the recognition and enforcement of International Arbitration Awards; (b) the International Arbitration Awards contemplated in item are limited to awards which are included within the scope of commercial law under Indonesian law; (c) the International Arbitration Awards contemplated in item (a), which may only be enforced in Indonesia, are limited to those which do not conflict with public order; (d) an International Arbitration Award may be enforced in Indonesia after obtaining a writ of execution from the Chairman of the Central Jakarta District Court; and (e) the International Arbitration Awards contemplated in item (a), which involve the State of the Republic of Indonesia as one of the parties to the dispute, may only be enforced after obtaining an exequatur from the Supreme Court of the Republic of Indonesia, which will then delegate it to the Central Jakarta District Court. Article 66
  19. 19. • Parties contracted for sale of sugar to be imported into Indonesia in circumstances where the Indonesian government required that companies had to hold a licence to import sugar into Indonesia. • The Indonesian buyer refused to complete the contract and the seller successfully obtained an Arbitral Award in London. • The buyer brought an action in the District Court of Central Jakarta arguing that the original contract was void ab initio for violation of Indonesian public policy. E.D.&F Man (Sugar) Ltd. v Yani Haryanto, Decision of the Supreme Court of the Republic of Indonesia No. 1205.K/Pdt/1990, 14 December, 1991
  20. 20. • Action succeeded as did an appeal to the Indonesian Supreme Court. • Illustrates the high rate of judicial interference with the enforcement of International Arbitral Awards on the grounds of public policy. • Indonesian courts have equated public policy with mandatory laws. E.D.&F Man (Sugar) Ltd. v Yani Haryanto, Decision of the Supreme Court of the Republic of Indonesia No. 1205.K/Pdt/1990
  21. 21. • Decision of the District Court of Central Jakarta in which an Indonesian company successfully prevented the enforcement of a US$270 million award. • Award was made in Geneva in favour of two Cayman Islands subsidiaries of a US state-owned electric company in Indonesia. • Public policy grounds, denial of procedural and substantive fairness as well as violation of natural justice cited as reasons for not enforcing the award. • Award was later enforced in Hong Kong. PerusahaanPertambangan Minjak dan Das Bumi Negara v Karaha Bodas Co LLC Pertamina, Decision of the District Court of Central Jakarta No. 86/PDT.G/2002/PN.JKT.PST
  22. 22. Australia (1) … (3A) The court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and (7). (5) Subject to subsection (6), in any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may, at the request of the party against whom it is invoked, refuse to enforce the award if that party proves to the satisfaction of the court that: (a) that party, being a party to the arbitration agreement in pursuance of which the award was made, was, under the law applicable to him or her, under some incapacity at the time when the agreement was made; (b) the arbitration agreement is not valid under the law expressed in the agreement to be applicable to it or, where no law is so expressed to be applicable, under the law of the country where the award was made; (c) that party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his or her case in the arbitration proceedings; (d) the award deals with a difference not contemplated by, or not falling within the terms of, the submission to arbitration, or contains a decision on a matter beyond the scope of the submission to arbitration; International Arbitration Act 1974 (Cth) Section 8 – Recognition of foreign awards
  23. 23. Australia (e) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (f) the award has not yet become binding on the parties to the arbitration agreement or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made. … (7) In any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may refuse to enforce the award if it finds that: (a) the subject matter of the difference between the parties to the award is not capable of settlement by arbitration under the laws in force in the State or Territory in which the court is sitting; or (b) to enforce the award would be contrary to public policy. (7A) To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if: (a) the making of the award was induced or affected by fraud or corruption; or (b) a breach of the rules of natural justice occurred in connection with the making of the award. International Arbitration Act 1974 (Cth) Section 8 – Recognition of foreign awards (cont.)
  24. 24. • US company entered in a licence agreement with an Australian company which contained an Indiana arbitration clause. • After a dispute arose between the parties the US company commenced proceedings in the Indiana court for preliminary injunctive relief and also a referral to arbitration, both of which were granted. • The arbitrator subsequently made an “interim arbitration order and award” in which injunctions were granted on the same basis as the court had awarded. • Enforcement of the award was sought in Australia. Re Resort Condominiums International Inc [1995] 1 Qd R 406
  25. 25. • Held that the court retains a residual discretion to refuse to enforce a foreign award outside the specifically enumerated grounds set out in the International Arbitration Act 1974 (Cth). • The court pointed to the more mandatory language of Article V(1) of the New York Convention which stated “recognition and enforcement of the award may be refused… only if that party furnishes proof” that one of the grounds in the Article is satisfied. • It was the absence of the word “only” in s 8(5) International Arbitration Act 1974 (Cth) which was relied upon by the court for the argument that a residual discretion exists to enforce an award. • An award may not be enforced when it “would be contrary to public policy” – here it was found that the award violated public policy on three bases. Re Resort Condominiums International Inc [1995] 1 Qd R 406
  26. 26. • Operations management agreement (OMA) between Altain Khuder LLC (Khuder) and IMC Mining Inc (IMC Mining) relating to iron ore mine in Mongolia. • OMA contained an arbitration agreement, and after a dispute arose in early 2009, Khuder commenced arbitration in Mongolia. • The arbitral tribunal made an award in Khuder’s favour but ordered that another entity, IMC Mining Solutions (IMC Solutions) pay this sum on behalf of IMC Mining. • In 2010 Khuder made an ex parte application to enforce the award in the Supreme Court of Victoria. • A single judge of the Victorian Supreme Court made an order that the award be enforced. IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 282 ALR 717, [2011] VSCA 248
  27. 27. • IMC Solutions applied to set the order aside on the basis that IMC Solutions was not a party to the relevant arbitration agreement. • IMC Solutions’ application was dismissed on a number of bases, including, primarily, that IMC Solutions had failed to prove that it was not bound under the agreement. • The trial judge further found that IMC Solutions was estopped from arguing in Australia that it was not bound by the agreement as it had not contested the issue in the tribunal hearing or the verification proceeding in Mongolia. • IMC Solutions appeal to Victorian Court of Appeal. IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 282 ALR 717, [2011] VSCA 248
  28. 28. • The controversy arises from the fact that the Court of Appeal allowed the appeal holding that an award creditor must satisfy the Court, on a prima facie basis, that it was a party to the arbitration agreement. • Once the award creditor establishes a prima facie entitlement to an enforcement order, the award debtor can apply to have the order set aside on grounds set out in ss 8(5) and (7) of the International Arbitration Act 1974 (Cth). • In this case, the Court found that Khuder had failed to prove that IMC Solutions was a party to the arbitration agreement. Khuder was therefore unable to scale the first hurdle and its application for an enforcement order was rejected. IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 282 ALR 717, [2011] VSCA 248
  29. 29. • Award handed down in England and the award creditor from Luxembourg, Traxys was seeking to enforce the award in Australia against the Indian award debtor, Balaji. • Balaji granted injunction in the HC of Kolkata in India to prevent Traxys from enforcing the award. • At the same time the High Court of Justice in England allowed Traxys to enforce the award there. • Traxys given permission by English court to apply for freezing orders against Balaji in Australia by virtue of it owning shares in an Australian company. • Balaji opposed this. Traxys v Balaji (2012) 201 FCR 535
  30. 30. • Judgment entered in favour of Traxys and the award was enforced. • Public policy ground of refusal to enforce an award should not be seen as a catch-all defence of last resort. • It is only those aspects of public policy that go to the fundamental, core questions of morality and justice in that jurisdiction which enliven this particular statutory exception to enforcement. Traxys v Balaji (2012) 201 FCR 535
  31. 31. • Amcor and Baulderstone had been in negotiations for the supply by Amcor to Baulderstone of a building to house a paper machine. • Amcor had been successful for the stage 1 works and a Project Delivery Proposal Agreement (PDPA) had been signed. • Amcor began performing the contract but a final contract had not been entered into. The parties fell in dispute. • Amcor indicated that it might commence proceedings against Baulderstone and Baulderstone sought to stay the proposed proceedings under s 8 of the Commercial Arbitration Act 2011 (Vic) on the basis that the PDPA’s arbitration clause required that ‘a dispute arising out of or in connection with this Agreement’ be referred to arbitration. Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253
  32. 32. Section 8 – Arbitration agreement and substantive claim before court (cf. Model Law Art 8) (1)A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party's first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. (2)Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court. Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253 Commercial Arbitration Act 2011 (Vic)
  33. 33. • The Court ordered that the part of the proposed proceeding as between Amcor and Baulderstone be stayed pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic). • The court construed the arbitration agreement and gave the definition of Dispute which was defined in the PDPA a very broad commercial interpretation. • It is significant that the court held that the existence of additional matters falling outside the scope of arbitration was not a ground for staying the arbitration. The additional matters could be resolved by the court following the conclusion of the arbitration. Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253
  34. 34. • Pipelines Services had a contract with ATCO Gas Australian for the installation of underground gas transmission pipelines. • ATCO terminated the contract. • Pipeline sued ATCO in the Supreme Court of Western Australia for breach of contract. • ATCO applied for those proceedings to be stayed because Clause 25 of the contract required the dispute to be determined by arbitration, and for the matter to be referred to arbitration. Pipelines Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10
  35. 35. Section 8 – Arbitration agreement and substantive claim before court (cf. Model Law Art 8) (1)A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so request no later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. (2)Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court. Pipelines Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10 Commercial Arbitration Act 2012 (WA)
  36. 36. • The court ordered that Pipeline’s proceeding be stayed and referred the matter to arbitration. • There is retrospective effect for the Commercial Arbitration Act 2012 (WA). • On proper construction of the agreement, the clauses that referred to arbitration survived the termination of the agreement. • In construing the language used by the parties in relation to an arbitration agreement the courts should adopt a broad, liberal and flexible approach to the construction of such agreements. Pipelines Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10
  37. 37. • TCL and Castel Electronics were parties to an agreement for the distribution in Australia of air conditioning units manufactured in China by TCL. • Agreement provided for arbitration in the event of any dispute that could not be resolved by mutual agreement. • Dispute arose between the parties, and was submitted to arbitration for resolution in accordance with the agreement with an award delivered in Castel’s favour. • TCL sought to have the award set aside under Articles 34 and 36 of the UNCITRAL Model Law on the grounds that the arbitrators had not accorded TCL procedural fairness in connection with the making of the award. TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCA 1214
  38. 38. • The Court was very pro enforcement and held that the a-national independence of the international arbitral legal order required at least 2 things from a national court for its efficacy: 1. A recognition that interference by national courts, beyond the matters identified in the Model Law as grounds for setting aside or non-enforcement would undermine the system; and 2. The swift and efficient judicial enforcement and legitimate testing of grounds under Arts 34 and 36 is critical to maintain: essential to it is courts acting prudently, sparingly and responsibly, but decisively when grounds under Arts 34 and 36 are revealed • No international arbitration award should be set aside in Australia as being contrary to Australian public policy unless fundamental norms of justice and fairness are breached. TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCA 1214
  39. 39. “(3A) The court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and (7).” “(7A) To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if: a)the making of the award was induced or affected by fraud or corruption; or b) a breach of the rules of natural justice occurred in connection with the making of the award.” International Arbitration Act 1974 (Cth) Amendment to section 8

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