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2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
INTERNATIONAL ARBITRATION AMENDMENT BILL 2010
REVISED EXPLANATORY MEMORANDUM
(Circulated by authority of the Attorney-General,
the Honourable Robert McClelland MP)
THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY
THE HOUSE OF REPRSENTATIVES
TO THE BILL AS INTRODUCED
INTERNATIONAL ARBITRATION AMENDMENT BILL 2010
OUTLINE
The International Arbitration Act 1974
The International Arbitration Act 1974 ('the Act') implements
Australia's obligations to enforce and recognise foreign arbitration
agreements and arbitral awards under the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards done at New York on
10 June 1958 (the New York Convention).
The Act also gives the force of law to the United Nations Commission on
International Trade Law (UNCITRAL) Model Law on International
Commercial Arbitration ('the Model Law') as the primary arbitral law
that governs the conduct of international arbitrations taking place in
Australia.
Finally, the Act also implements Australia's obligations under the
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States done at Washington on 18 March 1965.
The International Arbitration Amendment Bill 2010
The International Arbitration Amendment Bill 2010 ('the Bill') was
developed following a review of the Act announced by the Attorney-
General, the Hon Robert McClelland MP, on 21 November 2008 (the
Review).
The amendments to the Act contained in the Bill can be divided into
four categories: amendments to the application of the Act and the Model
Law; amendments concerning the interpretation of the Act; amendments to
provide additional option provisions to assist the parties to a
dispute; and miscellaneous amendments to improve the operation of the
Act.
Application of the Act and the Model Law
In 2006, UNCITRAL adopted the first set of amendments to the Model Law
since it was originally adopted in 1985. With one exception relating
to ex parte orders, the Bill will apply these amendments to
international commercial arbitration in Australia.
Section 21 of the Act allows the parties to an arbitration agreement to
resolve their dispute under an arbitral law other than the Model Law
(as given the force of law by the Act). For example, the parties could
choose to resolve their dispute under State or Territory legislation.
This creates significant legal difficulties and confusion concerning
the interaction of the different laws. The Bill repeals section 21,
removing the ability of the parties to an arbitration agreement to
nominate an alternative arbitral law. The Bill also amends the Act to
expressly provide that the Model Law covers the field with respect to
international commercial arbitration. In doing so, the Bill retains
jurisdiction for State and Territory Supreme Courts and the Federal
Court of Australia.
Interpretation of the Act
The Bill includes new provisions that are intended to confine the
circumstances in which the courts can set aside an award made under the
Model Law or refuse to enforce foreign awards under the New York
Convention and the Model Law.
The Bill amends the Act to provide guidance to the courts when
exercising powers and functions under the Act or the Model Law,
exercising a power or function under an arbitration agreement or award,
interpreting the Act or the Model Law or interpreting an arbitration
agreement or award. For example, the Bill requires a court to have
regard to the objects of the Act and to the fact that arbitration is an
'efficient, impartial, enforceable and timely' method of dispute
resolution.
The Bill inserts an objects clause into the Act which emphasises the
importance of international arbitration in facilitating international
trade and commerce and is intended to guide the interpretation of the
Act.
Optional Provisions
In addition to giving force to the Model Law as the primary arbitral
law governing the conduct of international commercial arbitration in
Australia, the Act also provides a range of provisions that can be used
to help resolve disputes fairly and efficiently. These provisions are
optional in that they must either be expressly adopted by the parties
or they apply by default but can be ousted by the parties.
These provisions address issues such as the consolidation of arbitral
proceedings, the awarding of interest and costs.
The Bill includes a number of additional optional provisions that will
be made available to the parties to an arbitration agreement. These
provisions cover issues such as obtaining evidence to support an
arbitration, security for costs, the disclosure of confidential
information and the death of a party. The Bill also clarifies which of
the optional provisions apply by default and which must be expressly
adopted.
Other Amendments
The Bill includes a range of other measures directed at improving the
general operation of the Act. These include providing a more expansive
definition of what constitutes an agreement in writing for the purposes
of the New York Convention and provisions to discourage adjournments
during enforcement proceedings and to clarify the operation of the
Model Law with respect to challenging the appointment of an arbitrator.
FINANCIAL IMPACT STATEMENT
The proposed amendments to the Act will not have any budgetary
implications for the Australian Government.
NOTES ON CLAUSES
Clause 1: Short Title
1. This clause is a formal provision specifying that, once enacted, the
short title of the Bill will be the International Arbitration Amendment
Act 2010.
Clause 2: Commencement
Clauses 1 to 3 of the Bill will commence upon Royal Assent. The
provisions of Schedule 1 are also expressed to commence upon Royal
Assent with the exception of items 6, 8, 13 and 25. The commencement
of these items is expressed to be contingent on the commencement of the
Federal Justice System Amendment (Efficiency Measures) Act 2009. As
that Act commenced on 7 December 2009, once the Bill comes into force,
items 6 and 25 will be taken to have commenced on 7 December 2009.
Items 8 and 13 commence on Royal Assent.
Clause 3: Schedules
2. This clause provides that each Act that is specified in a Schedule is
amended or repealed as set out in the applicable items in the Schedule
and that any other item in a Schedule has effect according to its
terms. The Bill contains only one schedule - Schedule 1.
Schedule 1 - Encouraging International Arbitration
Part 1 - Amendments
International Arbitration Act 1974
Amendments to Part I of the Act
3. Item 1 amends Part I of the Act which sets out preliminary matters that
apply throughout the legislation.
1. After section 2C
4. This item amends Part 1 of the Act by inserting a new subsection 2D
setting out the objects of the Act.
5. Arbitration facilitates international trade and commerce, including
international investment, by providing the parties to cross-border
transactions with a widely understood and internationally enforceable
means of resolving their disputes. Accordingly, the primary purpose of
the Act is to facilitate international trade and commerce by
encouraging the use of arbitration as a method of resolving disputes.
The Act does this by facilitating the use of arbitration agreements to
manage disputes - particularly by giving force to the Model Law - and
by facilitating the enforcement and recognition of foreign arbitration
agreements and awards by giving effect to the New York Convention.
6. The Act also gives effect to Australia's obligations under the
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States which is also reflected in section 2D.
7. Item 26 amends the Act by inserting a new section 39 which provides
that, amongst other things, the court must have regard to the objects
of the Act when performing functions or exercising powers under the Act
or the Model Law, when performing functions or exercising powers under
an agreement or award to which the Act applies, interpreting the Act or
the Model Law or interpreting an agreement or award to which the Act
applies.
8. See also Item 26.
Amendments to Part II of the Act
9. The following items amend Part II of the Act which gives effect to
Australia's obligations under the New York Convention to enforce and
recognise foreign arbitration agreements and arbitral awards.
Australia became a party to the New York Convention on 24 June 1975.
2. Subsection 3(1)
10. See Item 4.
3. Subsection 3(1)
11. See Item 4.
4. At the end of section 3
12. Section 7 of the Act gives effect to Australia's obligations under
Article II of the New York Convention to recognize and give effect to
foreign arbitration agreements. Article II of the New York Convention
provides:
1. Each Contracting State shall recognize an agreement in writing
under which the parties undertake to submit to arbitration all or any
differences which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not,
concerning a subject matter capable of settlement by arbitration.
2. The term "agreement in writing" shall include an arbitral clause in
a contract or an arbitration agreement, signed by the parties or
contained in an exchange of letters or telegrams.
3. The court of a Contracting State, when seized of an action in a
matter in respect of which the parties have made an agreement within
the meaning of this article, shall, at the request of one of the
parties, refer the parties to arbitration, unless it finds that the
said agreement is null and void, inoperative or incapable of being
performed.
13. Subsection 3(1) of the Act provides that the phrase arbitration
agreement means 'an agreement in writing of the kind referred to in sub-
article 1 of Article II of the Convention'. Section 3(1) also provides
that agreement in writing 'has the same meaning as in the Convention'.
While these definitions are of particular relevance to section 7 of the
Act they also have application to other provisions in Part II of the
Act including section 8 which gives effect to Articles III to VI of the
New York Convention concerning the recognition and enforcement of
foreign arbitral awards.
14. While the meaning of agreement in writing in the New York Convention is
inclusive, there has been growing concern amongst Contracting Parties
to the Convention that Article II(2) is being construed too narrowly by
legislators and domestic courts. This concern has arisen primarily in
response to the growing reliance on electronic communications in
international trade and commerce. Overly narrow interpretations of the
writing requirement have the potential to undermine the ongoing
effectiveness of the Convention.
15. This issue was considered by UNCITRAL at the same time as it was
adopting the 2006 amendments to the Model Law (see Item 11). On
7 July 2006, UNCITRAL adopted a recommendation regarding the
interpretation of the Convention encouraging Contracting Parties to
apply Article II(2) 'recognizing that the circumstances described
therein are not exhaustive'.[1] The recommendation was adopted in
recognition of the wide use of electronic commerce and the 'need to
promote the recognition and enforcement of arbitral awards'.[2]
16. This item inserts a new subsection 3(4) into the Act which clarifies
that agreement in writing is to be given an expansive interpretation
that takes into account modern means of communication. The provision
is based on the definition of agreement in writing contained in Option
1 of Article 7 of the Model Law as amended in 2006 (see Item 11 and
Item 12).
17. The new provision builds on the existing meaning of agreement in
writing in the Convention and the Act by clarifying that an agreement
will be in writing if 'its content is recorded in any form' regardless
of whether the agreement or contract to which it related 'has been
concluded orally, by conduct, or by other means'.
18. Further, an agreement is in writing if 'it is contained in an
electronic communication and the information in that communication is
accessible so as to be usable for subsequent reference'. A definition
of electronic communication is inserted into subsection 3(1) of the Act
by Item 3 which provides that 'electronic communication means any
communication made by means of data messages'. A definition of data
message is inserted into subsection 3(1) by Item 2. This definition
applies to information 'generated, sent, received or stored by
electronic, magnetic, optical or similar means'. While the definition
includes a number of examples - for example email - it is not intended
to be confined to these examples and should be interpreted to take
account of new means of communication as they emerge.
19. New subsection 3(4) of the Act also clarifies that an agreement will be
in writing if it is contained 'in an exchange of statements of claim
and defence in which the existence of the agreement is alleged by one
party and not denied by the other'. This application of Article II(2)
has long been accepted internationally and is reflected in the 1996
iteration of the Model Law. It is intended to facilitate the operation
of Article II of the Convention by encouraging courts to refer matters
to arbitration where this has previously been agreed by the parties.
20. This item also inserts a new subsection 3(5) which clarifies that 'a
reference in a contract to any document containing an arbitration
clause is an arbitration agreement, provided that the reference is such
as to make the clause part of the contract'.
21. By adopting the approach taken in Option 1 of Article 7 of the Model
Law, this item ensures consistency between the application of the
enforcement and recognition provisions in the New York Convention and
those in the Model Law as given force under the Act.
22. Item 2, Item 3 and Item 4 apply in relation to agreements entered into
on or after the commencement of these items (the day of Royal Assent) -
see Item 28.
23. See also Item 11, Item 12 and Item 28.
5. Subsection 8(2)
24. Subsection 8(2) of the Act provides that 'a foreign award may be
enforced in a court of a State or Territory as if the award had been
made in that State or Territory in accordance with the law of that
State or Territory'.
25. Section 8(2) is typically interpreted to mean that an application for
enforcement of a foreign award must be made under State or Territory
arbitration legislation - for example, section 33 of the Commercial
Arbitration Act 1984 (NSW) - rather than directly under the Act. A
concern raised during the Review of the Act is that the requirement to
enforce an award through the law of a State and Territory might be seen
to provide a Court with a basis to decline to enforce the award on any
ground contained in that law in addition to those set out in the Act.
26. This item amends subsection 8(2) to provide that a foreign award may be
enforced by a State or Territory court as if the award were a judgment
or order of that court, removing references to State and Territory law.
In conjunction with Item 7, this amendment is intended to remove any
application of the laws of the States and Territories in enforcing a
foreign award.
27. Item 24 makes a similar amendment to subsection 35(2) of the Act which
applies to the recognition of awards under the Convention on the
Settlement of Investment Disputes between States and Nationals of Other
States.
28. The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the item's commencement
(the day of Royal Assent) - see Item 29.
29. See also Item 7, Item 24 and Item 29.
6. Subsection 8(3)
30. The Federal Justice System Amendment (Efficiency Measures) Act
conferred jurisdiction on the Federal Court of Australia for the
purposes of section 8 of the Act by inserting subsection 8(3). To
ensure consistent phraseology with the amendments contained in Item 5,
this item will repeal subsection 8(3) and substitute a new provision to
the same effect.
31. Item 25 makes a similar amendment to subsection 35(4) of the Act which
applies to the recognition of awards under the Convention on the
Settlement of Investment Disputes between States and Nationals of Other
States.
32. The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the item's commencement -
see Item 29.
33. See also Item 25 and Item 29.
7. Before subsection 8(4).
34. One of the key benefits of using arbitration to resolve disputes is the
finality and enforceability of the resulting arbitral award. This is
of particular importance with respect to international commercial
arbitration.
35. Article V of the New York Convention sets out the grounds on which
recognition and enforcement of a foreign arbitral award may be refused
by the competent authority of a Contracting Party. Article V
reflects the principle that arbitral awards should be enforced unless
the award conflicts with fundamental principles of law and justice in
the enforcing state.
36. The grounds of refusal set out in Article V are divided into two
categories. The first category consists of matters that go to the
circumstances in which the award was made and whether the award is, in
fact, binding on the parties. For example, enforcement of an award may
be refused where one of the parties was under some kind of incapacity
or was not given notice of the arbitral proceedings or was otherwise
unable to present their case. The second category goes to the nature
of the award itself. A court may refuse to enforce an award that
relates to a subject matter that is not capable of settlement under the
law of that country. Further, enforcement may be refused if 'the award
would be contrary to the public policy of that country'.
37. The grounds set out in Article V of the New York Convention are
intended to be exhaustive. In other words, enforcement of an award may
only be refused if one of the grounds in Article V is made out.
38. Subsections 8(5) and 8(7) set out the grounds on which a court can
refuse to enforce a foreign arbitral award under the Act. These
grounds mirror those in Article V of the New York Convention.
39. During the Review of the Act, concern was expressed that courts do not
always treat the grounds for refusal in subsection 8(5) and 8(7) as
exhaustive. For example, in Resort Condominiums Inc v Bolwell and
Another [1995] 1 Qd R 406, the Supreme Court of Queensland found that
the court retains a discretion to refuse to enforce a foreign arbitral
award even if none of the grounds in section 8 of the Act are made out.
Such an approach is inconsistent with the intention of the Convention.
40. Accordingly, this item amends section 8 to insert a new subsection
8(3A) that states that a court may only refuse to enforce a foreign
award in the circumstances mentioned in subsections 8(5) and 8(7).
41. The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the commencement of the
item (the day of Royal Assent) - see Item 29.
42. Consideration was given to making a similar amendment to Part III of
the Act with respect to the setting aside of an award under Article 34
of the Model Law or the recognition and enforcement of awards under
Articles 35 and 36. These grounds mirror those in the New York
Convention. However, Article 34(2) of the Model Law states that an
arbitral award may be set aside 'only if' one of the grounds in the
Article is made out. Similarly, Article 36(1) provides that
recognition and enforcement of an award 'may be refused only' if one of
the grounds in that Article is made out. Accordingly, it is clear on
the face of the Model Law that the grounds in Articles 34 and 36 for
setting aside or refusing to enforce an award are intended to be
exhaustive and consequently such an amendment would be superfluous.
43. See also Item 29.
8. Subsection 8(4)
44. This item amends subsection 8(4) of the Act consequential to Item 6.
45. The amendment made by this item applies in relation to proceedings to
enforce a foreign award brought on after the commencement of the item -
see Item 29.
46. See also Item 6 and Item 29.
9. After subsection 8(7)
47. Under subsection 8(7) of the Act, a court may refuse to enforce an
award where to do so would be contrary to public policy. This ground
reflects paragraph V(2)(b) of the New York Convention.
48. A similar ground for setting aside or refusing to enforce an award is
found in Article 34 and Article 36 of the Model Law. Section 19 of the
Act clarifies the meaning of public policy under these articles of the
Model Law. Section 19 of the Act states:
Without limiting the generality of subparagraphs 34(2)(b)(ii) and
36(1)(b)(ii) of the Model Law, it is hereby declared, for the avoidance
of doubt, that, for the purposes of those subparagraphs, an award is in
conflict with the public policy of Australia 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.
49. At the time this provision was enacted - through the International
Arbitration Amendment Act 1989 - it was decided not to make an
equivalent amendment with respect to the public policy ground of
refusal in section 8 even though Articles 34 and 36 are based on
Article V of the New York Convention. The Explanatory Memorandum to
the 1989 legislation states that this decision was made 'so as to avoid
any possible inference that the term 'public policy' which is referred
to in the New York Convention does not contain those elements'.
Despite this explanation, the application of section 19 has the
potential to lead to the misinterpretation of the public policy ground
in section 8. Accordingly, this item replicates the terms of section
19 and applies them to the public policy ground in subsection 8(7) of
the Act.
50. The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the item's commencement
(the day of Royal Assent) - see Item 29.
51. See also Item 29.
10. At the end of section 8
52. Subsection 8(8) of the Act provides a mechanism for adjourning
enforcement proceedings where the court is satisfied that an
application for the setting aside or suspension of an arbitral award
has been made in the country under the law of which the award was made.
The provision gives effect to Article VI of the New York Convention.
53. The purpose behind Article VI of the Convention and hence subsection
8(8) is to ensure that enforcement of an award does not occur where
that award, in time, may be unenforceable.
54. The application of this provision has the potential to be used to
frustrate the enforcement of a foreign award in Australia where a party
opposing enforcement commences action in the country where the award
was made on spurious grounds or with the sole intention of delaying
enforcement. Further, subsection 8(8) of the Act does not provide an
adequate mechanism for a party seeking enforcement of an award to have
an adjournment lifted where the proceedings in the other country have
been resolved or have not been prosecuted in good faith and with due
dispatch.
55. This item amends section 8 of the Act to insert new subsections 8(9)
and 8(10). These provisions allow the court to order proceedings that
have been adjourned under subsection 8(8) to be resumed where one of
four circumstances occurs:
a) the application for setting aside or suspension of the award in the
foreign country is not being pursued in good faith
b) the application for setting aside or suspension of the award in the
foreign country is not being pursued with reasonable diligence
c) the application for setting aside or suspension of the award in the
foreign country has been withdrawn or dismissed, or
d) the continued adjournment of the proceedings is, for any reason, not
justified.
56. In addition, the court will be able to make orders for costs against
the person who made the application for setting aside or suspension of
the award in the foreign country and any other orders the court thinks
appropriate in the circumstances.
57. The amendment made by this item applies whether the proceedings are
adjourned under subsection 8(8) before or after the commencement of
this item (the day of Royal Assent) - see Item 30.
58. See also Item 30.
Amendments to Part III of the Act
59. The following items amend Part III of the Act which gives the force of
law to the Model Law as the primary arbitral law governing the conduct
of international commercial arbitrations in Australia. Part III also
provides a range of additional, optional, provisions that can be used
by the parties to an arbitration agreement should a dispute arise
between them.
11. Subsection 15(1)
60. Section 15 provides for the interpretation of Part III of the Act.
This item amends this section by repealing subsection 15(1) which sets
out the meaning of Model Law and substituting a new subsection. This
new provision inserts definitions for confidential information,
disclose and Model Law. The meanings of confidential information and
disclose are discussed at Item 18. The definition of
Model Law is discussed below.
61. Subsection 16(1) of the Act provides that, subject to the other
provisions of Part II, 'the Model Law has the force of law
in Australia'. The Model Law was adopted by UNCITRAL on 21 June 1985.
Subsection 15(1) provides that Model Law means:
the UNCITRAL Model Law on International Commercial Arbitration adopted
by the United Nations Commission on International Trade Law on 21 June
1985, the English text of which is set out in Schedule 2.
Schedule 2 to the Act duly replicates the Model Law as adopted by
UNCITRAL in 1985.
62. On 7 July 2006, UNCITRAL adopted amendments to the Model Law. These
amendments:
. insert a new Article 2A, which is intended to promote uniform
interpretation of the Model Law
. amend the definition of 'arbitration agreement' in Article 7 to give
parties the option of adopting a less prescriptive definition
. adopt more extensive provisions on 'interim measures and preliminary
orders', and
. amend Article 35(2) to remove authentication requirements when
seeking enforcement of an award through a court and to rationalise
the requirements for translating awards.
Each of these amendments to the Model Law and the proposed approach to
their implementation is dealt with in further detail below.
63. In conjunction with subsection 16(1) of the Act, and subject to the
exceptions discussed below, this item will give the force of law to the
Model Law including the amendments made in 2006. Schedule 2 of
the Act has been updated to reflect the amendments to the Model Law.
Uniform Interpretation
64. Article 2A of the Model Law, as inserted in 2006, 'is designed to
facilitate interpretation by reference to internationally accepted
principles and is aimed at promoting a uniform understanding of the
Model Law'. The Article provides:
1) In the interpretation of this Law, regard is to be had to its
international origin and to the need to promote uniformity in its
application and the observance of good faith.
2) Questions concerning matters governed by this Law which are not
expressly settled in it are to be settled in conformity with the
general principles on which this Law is based.
65. There was widespread support expressed during the Review of the Act for
incorporating Article 2A through the Act. In order to ensure that
Australia is an attractive venue for the conduct of international
commercial arbitration, it is important that the Model Law is
interpreted in a way that is consistent with approaches taken overseas.
Novel or perverse interpretations by Australian courts have the
potential to undermine confidence in Australia as a venue for
conducting arbitration.
Definition of Arbitration Agreement
66. Prior to its amendment in 2006, Article 7 of the Model Law set out the
meaning of arbitration agreement and the formal requirements for such
agreements. A key requirement of this Article was that an arbitration
agreement must be in writing. The Article then set out a range of ways
in which this requirement could be satisfied - for example an agreement
is in writing if it is contained in an 'exchange of letters, telex,
telegrams or other means of telecommunications which provide for a
record of the agreement'. It was the intention of the drafters of the
Model Law that Article 7 should be consistent with the writing
requirement in Article II(2) of the New York Convention (see Item 4).
67. The 2006 amendments to the Model Law offer States alternative versions
of Article 7 referred to as 'options'. States must choose which
version of Article 7 they wish to incorporate into their laws. Option
I is in substantially the same terms as the 1985 iteration of Article
7, although there are two significant changes. First, Option I
clarifies that an agreement may be concluded orally, through conduct or
other means, provided that its content is recorded in some form.
Secondly, the provision reflects the use of electronic communications
to conclude commercial arrangements. Option II is less prescriptive
than both the original iteration of Article 7 and Option I. It
includes a definition of 'arbitration agreement' but excludes any
formal requirements, including the requirement that an agreement be in
writing.
68. During consultations conducted as part of the Review of the Act, there
was widespread support for adopting Option I. This option is
consistent with the approach taken originally in the Model Law but has
been modernised to reflect contemporary arbitration practice. Option
II, on the other hand, would involve a substantial departure from
current practice in Australia. Further, Option I can be
adapted to the interpretation of the writing requirement in the New
York Convention (see Item 4). Accordingly, Item 12 amends section 16
of the Act to provide that 'arbitration agreement' has the same meaning
as in Option I for Article 7 of the amended Model Law.
Interim measures and preliminary orders
69. Prior to 2006, Article 17 of the Model Law allowed an arbitral tribunal
to 'order any party to take such interim measure of protection as the
arbitral tribunal may consider necessary in respect of the subject-
matter of the dispute'. The primary purpose of the provision was to
ensure that assets are preserved pending the completion of the
arbitration process.
70. Article 17 was in the most basic terms and, significantly, did not
provide for enforcement through a court, rendering many interim
measures of little value. In Australia, this was overcome in part
through section 23 of the Act which allows the parties to agree that
such measures will be enforceable as if they were an award.
71. The 2006 amendments to the Model Law introduce a significantly more
sophisticated regime for making and enforcing interim measures. These
measures bring arbitration into line with the types of protection that
could be obtained from a court during litigation. Significantly, the
amendments also provide for interim measures to be made by a court and
for the enforcement of such measures.
72. In addition to the new provisions on interim measures, new Articles 17B
and 17C of the Model Law establish a regime for preliminary orders.
These are the equivalent of ex parte orders made by a court in
circumstances where there is a perceived risk that a party will attempt
to frustrate interim measures. While this proposal received some
support from stakeholders, it was extremely controversial when
considered by UNCITRAL and was opposed by key stakeholders in Australia
during the Review.
73. The primary objection to the provisions allowing for preliminary
measures is that such measures are inconsistent with the consensual
underpinning of arbitration. Accordingly, Item 14 amends the Act to
provide that, despite Article 17B of the Model Law, preliminary orders
are not available under the Act or the Model Law.
74. As a consequential amendment, Item 18 repeals current section 23 of the
Act which is no longer required as the recognition and enforcement of
interim measures is now dealt with in Articles 17H and 17I of the Model
Law.
75. The 2006 amendments make a consequential amendment to Article 1(2) of
the Model Law. In its original iteration, the Model Law provided that:
'the provisions of this Law, except articles 8, 9, 35 and 36, apply
only if the place of arbitration is in the territory of this State'.
To ensure the effective operation of interim measures and (for those
States adopting them) preliminary orders, it is necessary to include
Articles 17H to 17J to this list. These provisions relate to the
recognition and enforcement of interim measures and, accordingly, need
to apply to arbitrations conducted in a foreign state. This amendment
is adopted accordingly, subject to the limitation set out in Item 14.
Authentication and translation requirements
76. The 2006 amendments to Article 35 of the Model Law are intended to
reduce formality when seeking the recognition and enforcement of an
award. They are relatively minor changes and received broad support
from stakeholders.
77. See also Item 4, Item 12, Item 14, and Item 18.
12. Subsection 16(2)
78. As noted under Item 11, the 2006 amendments to the Model Law provide
two alternative provisions for defining arbitration agreement for the
purposes of the Model Law. For the reasons set out under that item,
the Bill amends the Act to insert a new definition into subsection
16(2) which provides that arbitration agreement has the meaning set out
in Option 1 of Article 7 of the Model Law.
79. Item 4 clarifies the meaning of agreement in writing under Part II of
the Act for the purposes of implementing the New York Convention
consistently with Option 1 of Article 7 of the Model Law.
80. See also Item 4 and Item 11.
13. Repeals section 18
81. Item 13 replaces the existing section 18 with a new provision which
allows a court or an authority to be prescribed as a competent court or
authority to perform various functions set out in the Model Law
relating to the failure to appoint arbitrators.
82. A number of other functions under the Model Law are reserved to the
Federal Court, as well as State and Territory Supreme Courts. These
functions concern challenges to arbitrators (Article 13(3)),
failure or impossibility to act (Article 14), challenges to
jurisdiction (Article 16(3)) and appeals against awards (Article
34(2)).
14. After section 18
83. Article 12 of the Model Law sets out the grounds on which the
appointment of an arbitrator appointed in accordance with Article 11
may be challenged. Under Article 13, the parties are free to determine
the procedure for challenging an arbitrator, subject only to the
requirement in Article 13(3) that where a challenge has failed the
party must be able to have recourse to a court to determine the matter.
84. The parties have a wide degree of discretion in choosing arbitrators to
resolve their dispute. Article 11 of the Model Law allows them to
determine the appointment procedure. Where no procedure is in place,
Article 11 provides a default mechanism with ultimate recourse to a
court where agreement cannot be reached.
85. Article 12(1) places an obligation on arbitrators to disclose 'any
circumstances likely to give rise to justifiable doubts as to his
impartiality or independence'. This obligation attaches from the
moment they are approached about an appointment as an arbitrator and
continues throughout their appointment. Article 12(2) provides that an
arbitrator may be challenged 'only if circumstances exist that give
rise to justifiable doubts as to his impartiality or independence, or
if he does not possess qualifications agreed to by the parties'.
86. In Australia the test for bias that is applied to arbitrators is the
same as that applied to judges. The test is whether a fair minded lay
observer might reasonably apprehend that the arbitrator might not bring
an impartial mind to the resolution of the dispute (see for example ICT
Pty Ltd v Sea Containers Ltd [2002] NSWSC 77).
87. Equating arbitrators with judges is not consistent with the principles
underpinning arbitration. While there is no doubt that an arbitrator
should be impartial, arbitrators will be selected by the parties in
some instances because of their specific knowledge of an industry or
particular arrangements. More typically an arbitrator will be a senior
member of an international law firm, barrister, expert in a particular
field or an academic. Accordingly, it is appropriate to apply a
standard different than that for judges to such persons.
88. One approach suggested during consultations for the Review was to adopt
the approach taken to bias in the United Kingdom. In R v Gough [1993]
AC 646, the House of Lords applied the following test for bias:
having ascertained the relevant circumstances, the court should ask
itself whether, having regard to those circumstances, there was a real
danger of bias on the part of the relevant member of the tribunal in
question, in the sense that he might unfairly regard (or have unfairly
regarded) with favour, or disfavour, the case of a party to the issue
under consideration by him...[3] [emphasis added]
89. In his leading judgment, Lord Goff of Chieveley states expressly that
this approach should apply to arbitrators, although this was not at
issue in the decision.
90. This item inserts a new section 18A into the Act to provide that the
test for whether there are justifiable doubts as to the impartiality or
independence of an arbitrator is the real danger of bias test set out
in R v Gough.
91. Section 18A will apply in relation to an approach to an arbitrator on
or after the commencement of the item and to any challenge to an
arbitrator made on or after the commencement of the item (the day of
Royal Assent) - Item 31.
92. As discussed under Item 11, the 2006 amendments to the Model Law make
provision for preliminary orders (Article 17B). For the reasons given
earlier, this provision will not be given effect under the Act. This
item inserts a new section 18B into the Act which provides that despite
Article 17B of the Model Law, no party to an arbitration agreement may
make an application for a preliminary order and no arbitral tribunal
may grant such an order.
93. Section 18B will apply from the commencement of this item (the day of
Royal Assent) - Item 31.
94. Article 18 of the Model Law provides that 'the parties shall be treated
with equality and each party shall be given a full opportunity of
presenting his case'.
95. One of the key purposes of arbitration is to provide an effective
alternative to judicial consideration. To ensure that this is the
case, tribunals need a wide degree of discretion to manage proceedings
and even truncate them where this would be in the interests of the
parties by achieving a speedy resolution of their dispute. The
requirement in Article 18 that parties be given a 'full opportunity' to
present their case poses a potential impediment to the effective
management of the proceedings by the arbitral tribunal.
96. This item will also insert a new section 18C into the Act that provides
that if a party has been given a 'reasonable opportunity' to present
their case then this would satisfy the requirement in Article 18 of the
Model Law that they be given a 'full opportunity' to present their
case. This section is intended to give arbitral tribunals a
wider degree of flexibility in controlling arbitral proceedings without
removing requirements for the parties to be treated with equality and
have an appropriate opportunity to make out their case.
97. The new Section is consistent with approaches taken in key
jurisdictions overseas, including: Mauritius, New Zealand, Singapore
and the United Kingdom. Hong Kong and Malaysia have also adopted
substantially similar approaches.
98. See also Item 11 and Item 31.
15. Section 19
99. As discussed under Item 9, one of the grounds under which a court may
refuse to enforce or recognise a foreign arbitral award under the New
York Convention and the Model Law (or set aside an award under Article
34 of the Model Law) is that to do so would be contrary to the public
policy of the country in which enforcement is sought. Section 19 of
the Act is an interpretative provision that clarifies that for the
purposes of Articles 34 and 36 of the Model Law, an award is in
conflict with the public policy of Australia 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.
100. This item would repeal section 19 and re-state it with two small but
significant changes.
101. First, the provision has been altered to take account of the new
regime for interim measures in the Model Law. As discussed under Item
11, the 2006 amendments to the Model Law introduce a more sophisticated
regime for interim measures. Article 17H of the Model Law provides for
the recognition and enforcement of interim measures to ensure that the
purpose of any such measure is not frustrated by the international
aspect of the dispute.
102. Article 17H provides that subject to Article 17I, an interim measure
must be enforced upon application to a court irrespective of the
country in which the measure was issued. Article 17I sets out the
grounds on which a court may refuse to recognise and enforce an interim
measure. Amongst other matters, this Article incorporates the grounds
of refusal that relate to the recognition and enforcement of awards in
Article 36 which, in turn, reflect the grounds of refusal in Article V
of the New York Convention.
103. Accordingly, it is necessary to apply section 19 to the recognition
and enforcement of interim measures.
104. Secondly, this item also makes a minor technical change to section 19
as currently drafted to include the words 'or is contrary to' after the
words 'conflict with'. As already noted, this is an interpretive
provision that applies to the public policy ground for setting aside an
arbitral award or for refusing to recognise and enforce such an award
under Articles 34 and 36 of the Model Law.
105. The drafting of the public policy ground varies slightly as between
Articles 34 and 36. Article 34 provides that a court may set aside an
award if the award 'is in conflict with' public policy. By way of
contrast, Article 36 allows a court to refuse to recognise or enforce
an award where it finds that to do so 'would be contrary to' public
policy. This amendment ensures that section 19 reflects both
constructions.
106. See also Item 9 and Item 11.
16. Section 21
107. Section 21 of the Act currently provides that the parties to an
arbitration agreement may agree that any dispute that arises between
them may be settled 'otherwise than in accordance with the Model Law'.
In such cases 'the Model Law does not apply in relation to the
settlement of that dispute'.
108. The provision allows the parties to substitute an alternative law
under which their dispute will be resolved. For example, they could
choose to resolve their dispute under the Commercial Arbitration Act
(NSW) or the law of a foreign country.
109. The Model Law gives the parties to an arbitration a wide degree of
control over how their dispute is resolved. In particular, Article 19
provides that the parties are free to agree on the procedure to be
followed by the arbitral tribunal in the conduct of the proceedings.
Arbitration rules that can be used under Article 19 have been
developed by a number of international organisations, including
UNCITRAL and the International Chamber of Commerce and Australian
institutions such as the Australian Centre for International Commercial
Arbitration.
110. In addition to Article 19, Article 28 of the Model Law provides that
'the arbitral tribunal shall decide the dispute in accordance with such
rules of law as are chosen by the parties as applicable to the
substance of the dispute'. For example, in an arbitration between a
party from Australia and a party from New Zealand, the parties may
select the law of a third country as the applicable law to the dispute.
111. It is important to distinguish between the arbitral law under which a
dispute is resolved and the substantive law which is applied to the
particular facts of the matter in question. Article 28 contemplates
party choice as to the latter whereas section 21 of the Act provides
for party choice as to the former. Section 21 allows the parties to
exclude all the provisions of the Model Law including those that
concern setting aside of awards and the recognition and enforcement of
awards (Articles 34 to 36).
112. The operation of section 21 causes considerable practical and
interpretive problems. Firstly, section 21 allows the parties to
'opt-out' of using the Model Law but not the Act. Hence other
provisions of the Act may continue to apply, even though these
provisions are underpinned by the Model Law. Where an alternative law
has been nominated - for example the law of Singapore - the provisions
of the Act may conflict with those of the law nominated. Secondly, it
is not necessary for the parties to nominate an alternative law under
which their dispute is to be resolved. Unless the parties nominate
another law under which the arbitration is to occur, it is not clear
what law would apply. While there is an argument that State or
Territory law would apply to an arbitration being conducted in
Australia, this is not straightforward. Thirdly, even where a law is
nominated, it will not always be clear that a court will have any power
with respect to the arbitration. For example, simply nominating the
Commercial Arbitration Act (NSW) will not necessarily give a court in
NSW any jurisdiction over the arbitration proceedings should the need
arise. Finally, should the law of a foreign country be nominated and
the arbitration is conducted in Australia it is doubtful that there
would be any court which could exercise jurisdiction if required and
the agreement may be unenforceable both in Australia and overseas.
113. A further problem has arisen in the judicial application of section 21
of the Act. For example, in Eisenwerk v Australian Granites Ltd [2001]
1 Qld R 461, the Queensland Court of Appeal held that by adopting the
International Chamber of Commerce Rules, the parties had opted out of
the Model Law. This interpretation is unsatisfactory because parties
nominating either the International Chamber of Commerce Rules or the
Australian Centre for International Commercial Arbitration Rules (which
are both procedural rules) would then be taken to have opted out of the
Model Law in its entirety and be unable to pursue certain avenues of
relief provided for in the Model Law. As already noted,
Article 19 of the Model Law expressly contemplates the parties
determining their rules of procedure. The rationale for allowing the
parties to choose their own procedural rules is that they may tailor
the rules to suit their specific wishes. This should not amount to
ousting the Model Law completely. For example, the Model Law accords
the parties considerable freedom to tailor the procedural rules to suit
their particular circumstances. However, there are fundamental
requirements which may not be ousted, such as the requirement that the
parties be treated with equality and that the rules provide overall
fairness and justice.
114. While it is appropriate to give parties the flexibility to determine
the procedures they want and the substantive law that is applicable to
the dispute, allowing parties to oust the arbitral law creates
significant difficulties that cannot be easily remedied without complex
litigation. Accordingly, this item repeals section 21. Consequently,
while the parties will continue to have freedom to choose both the
procedures and applicable substantive law, they will not be free to
oust the Model Law as the applicable arbitral law.
115. Section 21 raises a broader question about the 'exclusivity' of the
International Arbitration Act in governing international commercial
arbitration in Australia. The legislative history of the Act suggests
that it was Parliament's intention that the Act 'cover the field' for
international commercial arbitration and that State and Territory
commercial arbitration acts would not apply (subject to the choice of
the parties in accordance with section 21). Part III of the Act which
implements the Model Law was inserted in the Act by the International
Arbitration Amendment Act 1989. When originally introduced, this
legislation would have preserved State and Territory legislation to the
extent that it mirrored the Commonwealth Act. However, the relevant
provision (proposed section 29) was removed by way of Government
amendment. The explanatory memorandum for this amendment states:
The deletion of proposed s.29 will ensure that a single Australian
(Commonwealth) law will govern all international commercial
arbitrations conducted in Australia, unless the parties themselves
choose otherwise.
116. There have been a number of decisions in Australian courts that have
undermined the exclusive application of the Act. Arguably the most far
reaching example is the decision of Giles CJ in American
Diagnostica Inc v Gradipore Limited (1998) 44 NSWLR 312 which held in
effect that international commercial arbitration in Australia could
continue to be regulated by State or Territory legislation.
117. There was strong support from stakeholders for making the Act the
exclusive law governing international commercial arbitration in
Australia. Addressing section 21 of the Act more broadly, was proposed
in a number of submissions and in a number of academic works.
118. One concern raised during consultations was that many practitioners
consider the Model Law to be incomplete. In particular, there is a
concern that provisions contained in State and Territory Acts that
provide courts with powers to support arbitrators are absent from the
Model Law. While it is preferable to minimise the involvement of
courts in arbitration wherever possible, it is nonetheless desirable
that parties are able to seek support from a court where another party
or person is frustrating the arbitration proceedings.
119. In addition to repealing current section 21, this item inserts a new
section 21 which provides simply that if the Model Law applies to an
arbitration, the law of a State or Territory relating to arbitration
does not apply to that arbitration. Consequently, the arbitration law
of a State or Territory will not operate with respect to an
international commercial arbitration but any State or Territory laws
applying to the substance of the dispute will continue to have
application. This item is complemented by the amendments in Item 6,
Item 7 and Item 24 which remove any role for State and Territory law in
enforcing and recognising foreign arbitral awards under the New York
Convention and awards under the Convention on the Settlement of
Investment Disputes Between States and Nationals of Other States.
120. Acknowledging concerns about the completeness of the Model Law, Item
18 amends the Act to insert a range of additional tools that the
parties can use in resolving their dispute satisfactorily, including
allowing the courts to provide support to the arbitration.
121. See also Item 6, Item 7, Item 18 and Item 24.
Item 16A Division 3 of Part III
122. Division 3 of Part III of the Act includes a range of optional
provisions that supplement the provisions of the Model Law. These
provisions address issues such as consolidation of arbitration
proceedings, interests and costs.
123. Item 16B amends the basis on which these provisions - and the
additional provisions to be included through the Bill - would apply.
Item 16A amends the heading to Division 3 of Part III to better reflect
the proposed approach.
124. See also Item 16B
Item 16B Section 22
125. As already noted, Division 3 of Part III of the Act includes a range
of optional provisions that supplement the provisions of the Model Law.
These provisions address issues such as the consolidation of
arbitration proceedings, interest and costs. The Bill adds a number of
additional provisions to Division 3 addressing issues such as court
assistance to obtain evidence, confidentiality and the consequences of
a death of a party.
126. The provisions of Division 3 apply on either an 'opt-in' or 'opt-out'
basis. That is, some of these provisions only apply to the arbitration
if the parties expressly provide that they apply (for example,
consolidation of arbitral proceedings) whereas others automatically
apply to an arbitration but the parties can choose to exclude them (for
example, costs).
127. Following detailed consultations with practitioners, the Bill will
adopt a different approach to how the optional provisions in Division 3
of Part III apply. A number of these provisions have been identified
as fundamental tools that should be available by default in any
arbitral proceedings unless expressly excluded - these provisions
include those concerning court assistance in taking evidence, interest
and costs. Others, such as the provisions concerning consolidation of
arbitral proceedings and confidentiality, are matters to which the
parties should expressly turn their minds before they apply.
128. Item 16B repeals section 22 of the Act and provides that the
provisions of Division 3 of Part III apply on the following basis:
|Section |Description |Opt-in/Opt-o|
| | |ut |
|23 |Parties may obtain subpoenas |Opt-out |
|23A |Failure to assist arbitral tribunal |Opt-out |
|23B |Default by party to an arbitration agreement |Opt-out |
|23C |Disclosure of confidential information |Opt-in |
|23D |Circumstances in which confidential information may |Opt-in |
| |be disclosed | |
|23E |Arbitral tribunal may allow disclosure in certain |Opt-in |
| |circumstances | |
|23F |Court may prohibit disclosure in certain |Opt-in |
| |circumstances | |
|23G |Court may allow disclosure in certain circumstances |Opt-in |
|23H |Death of a party to an arbitration agreement |Opt-out |
|23J |Evidence |Opt-out |
|23K |Security for costs |Opt-out |
|24 |Consolidation of arbitral proceedings |Opt-in |
|25 |Interest up to making of award |Opt-out |
|26 |Interest on debt under award |Opt-out |
|27 |Costs |Opt-out |
129. This approach reflects international practice which is particularly
important where parties to a dispute choose to arbitrate in Australia
as a 'neutral' venue. The parties - and their lawyers - may not be
familiar with the Act and draft arbitration clauses on an assumption
that the Act will be similar to legislation overseas. Item 16B ensures
that the approach taken to Division 3 of Part III is in line with
approaches taken in most prominent arbitration jurisdictions such as
Hong Kong, Singapore and the United Kingdom.
130. See also Item 16A and Item 17.
17. After section 22
131. This item provides that for the purposes of Division 3 of Part III of
the Act, court means a State or Territory Supreme Court, or the Federal
Court.
18. Section 23
132. As already noted, Division 3 of Part III of the Act provides a suite
of optional provisions that are intended to support the parties to
resolve their dispute as effectively and fairly as possible. These
provisions deal with interim measures (section 23), consolidation of
arbitral proceedings (section 24), interest up to making of award
(section 25), interest on debt under award (section 26) and costs
(section 27).
133. As noted under Item 11, the 2006 amendments to the Model Law introduce
a more sophisticated regime for interim measures than previously
provided for in the Model Law. This regime now addresses issues of
enforcement which are also addressed in section 23. Accordingly,
section 23 is no longer required and this item repeals the section.
134. In addition to repealing current section 23 of the Act, this item
inserts new sections 23 to 23K. These new optional provisions address
assistance from the court, confidentiality, the death of a party,
evidence and security for costs.
Assistance from the court
135. As noted under Item 16, one concern raised during the Review of the
Act was that many practitioners consider the Model Law to be
incomplete. In particular, there is a concern that provisions
contained in State and Territory Acts that provide courts with powers
to support arbitrators are absent from the model law. These State and
Territory provisions allow the parties to obtain a subpoena from a
court to require a person (a) to attend for examination before an
arbitrator, (b) to produce to the arbitrator documents specified in the
subpoena, and (c) to do both these things. These provisions protect
the normal privileges that apply in legal proceedings. These
provisions also provide that a person who refuses to appear before, or
produce documents to, an arbitrator or fails to cooperate with an
arbitrator may be examined by, or required to produce the relevant
document to, a court.
136. While it is preferable to minimise the involvement of courts in
arbitration wherever possible, it is nonetheless desirable that parties
are able to seek the courts support where another party or person is
frustrating the arbitration proceedings. Accordingly, this item amends
the Act to include provisions equivalent to those in the State and
Territory Commercial Arbitration Acts.
137. The Act will insert new section 23 which will allow a party to
arbitral proceedings commenced in reliance on an arbitration agreement
to apply to a court for a subpoena to require a person to (a) attend
before the arbitral tribunal for examination or (b) to produce to the
tribunal the documents specified in the subpoena.
138. This provision includes four important safeguards. First, the party
may only approach the court with the permission of the arbitral
tribunal. This is intended to prevent a party from using the process
to draw out proceedings or compel attendance or the production of
documents where the tribunal does not feel it is necessary for
resolving the dispute. Secondly, the court may only issue a subpoena
'for the purposes of the arbitral proceedings' - this means the court
must be satisfied that the subpoena is genuinely being sought for the
purposes of resolving a dispute and not to support some secondary
purpose.
139. The third safeguard in new section 23 is that before issuing a
subpoena with respect to a person who is not a party to the dispute,
the court must not do so unless it is satisfied that it is reasonable
in all the circumstances. This provision is intended to protect the
rights of third parties - particularly against the abuse of arbitral
proceedings for some unrelated purpose such as obtaining sensitive
commercial information.
140. Finally, new section 23 provides that a person must not be compelled
under the subpoena to answer any question or produce any document which
the person could not be compelled to answer or produce in a proceeding
before that court. This provision is intended to protect privileges
and immunities that would ordinarily be enjoyed in court proceedings
such as legal professional privilege.
141. A person who has been subpoenaed can challenge the issue of the
subpoena in the court from which it originated, and has the option of
being heard before a further order is made under new section 23A.
142. Article 27 of the Model Law provides:
The arbitral tribunal or a party with the approval of the arbitral
tribunal may request from a competent court of this State assistance in
taking evidence. The court may execute the request within its
competence and according to its rules on taking evidence.
143. Subsection 23(6) clarifies that section 23 does not limit the other
types of assistance that may be available under Article 27 of the Model
Law. The provision is intended to preserve the broad discretion of the
courts in assisting with taking evidence and allow for the courts to
provide new types of assistance as they emerge - subject to the rules
of the individual court.
144. In addition to the subpoena power, this item inserts a new section 23A
which allows a court to issue a range or orders where a person has
failed to cooperate with an arbitral tribunal or has not complied with
a subpoena issued under new subsection 23. Where this has occurred, a
court may order the person to attend before the court for examination
or to produce documents or order the person, or any other person, to
transmit a record of evidence given, or documents produced to the
arbitral tribunal.
145. Section 23A will contain the same four safeguards that apply to new
section 23 with the exception that the consent of the arbitral tribunal
will not be required before a party can seek an order as a result of a
failure to comply with a subpoena. Subpoenas are exempted from this
requirement as the permission of the tribunal is required before an
application for a subpoena could be made under section 23.
146. Subsection 23A(6) clarifies that section 23A does not limit the other
types of assistance that may be available under Article 27 of the Model
Law for the same reasons as set out in paragraphs 143 and 144 above in
relation to new section 23.
147. Article 25 of the Model Law addresses the consequences of a failure by
a party to the arbitral proceedings to communicate a statement of claim
or a statement of defence or to appear at a hearing or produce
documentary evidence. In the latter case, Article 25(3) provides that
'the arbitral tribunal may continue the proceedings and make the award
of the evidence before it'. The Article applies unless otherwise
agreed by the parties.
148. New section 23B of the Act sets out the consequences of failing to
comply with a subpoena, an order from the court or a requirement of the
arbitral tribunal. This provision supplements Article 25 of the Model
Law. In all cases, default by a party allows the arbitral tribunal to
continue with the arbitration proceedings and make an award on the
evidence before it. The provision does not affect any other power
which the tribunal or a court may have in relation to the default.
For example, the provision is not intended to affect the power of a
court to punish for contempt.
Confidentiality
149. One of the significant attractions of arbitration as a method of
resolving disputes is that it is much easier to control the disclosure
of confidential information as compared to litigation. Proceedings
generally occur in private and the parties have a wide degree of
control over how the proceedings are conducted. This is of significant
concern to parties where sensitive commercial information is being
considered.
150. Article 25(4) of the UNCITRAL Arbitration Rules provides that
arbitration proceedings are to be held in private. This has been
interpreted differently in different countries. In Australia, the High
Court has held in Esso Australia Resources Ltd v Plowman (1995) 183 CLR
10 that confidentiality is not an essential feature of 'private'
arbitration. 'Private' was interpreted to mean that members of the
public are not entitled to attend. Further, the Court held that at
common law, confidentiality does not automatically attach to documents
and information provided in the course of an arbitration. However,
where a party is compelled to provide documents or information during
an arbitration, similar protections as apply to discovery before the
courts may be invoked with respect to the documents or information.
151. The parties are free to provide for greater confidentiality
protections through their arbitration agreement, which would then be
enforceable as terms of a contract. One way of doing this is to adopt
arbitration rules - such as those promulgated by the Australian Centre
for International Commercial Arbitration - that address
confidentiality.
152. While the common law provides an appropriate level of confidentiality
for most circumstances, there will be some cases where the parties have
a legitimate interest in ensuring greater level of protection for the
information they put before a tribunal.
153. This item would insert a set of provisions that the parties may adopt
for the protection of confidential information. The provisions have
been adapted from similar provisions in the Arbitration Act 1996 (NZ).
154. A definition of confidential information is inserted in subsection
15(1) by Item 11. This definition covers documents associated with the
proceedings such as statements of claim and pleadings, evidence
supplied to the tribunal, transcripts of evidence, submissions and the
tribunal's award.
155. This item inserts a new section 23C which provides that the parties to
arbitral proceedings and the arbitral tribunal must not disclose
confidential information in relation to the arbitral proceedings
unless:
a) the disclosure is allowed under section 23D
b) the disclosure is allowed under an order made by an arbitral tribunal
under section 23E and no order is in force under section 23F
prohibiting the disclosure, and
c) the disclosure is allowed under a court order made under section 23G.
156. Item 11 inserts an interpretation provision in section 15(1) of the
Act to clarify that disclose, in relation to confidential information,
'includes giving or communicating the information in any way'.
157. New section 23D sets out the general circumstances in which
confidential information can be disclosed by a party to the proceedings
or the arbitral tribunal. These circumstances include where all the
parties to the tribunal have consented, it is necessary for the
establishment or protection of the legal rights of a party, disclosure
is required by a subpoena or an order of a court, or where disclosure
is authorised or required by another relevant law (including a law of
the Commonwealth or a State or Territory and, in some circumstances,
the law of a foreign country).
158. Importantly, disclosure is authorised for the purposes of enforcing an
arbitral award. This is intended to include enforcing the award in a
foreign country.
159. New section 23E allows an arbitral tribunal to authorise the
disclosure of confidential information in circumstances other than
those mentioned in section 23D. This can only occur at the request of
one of the parties to the proceedings and only once the other parties
have had the opportunity to be heard. Of course, section 23D allows
disclosure with the consent of all the parties. Section 23G would deal
with the situation where no consent was forthcoming. Where the mandate
of the arbitral tribunal has been terminated or the tribunal rejects
the application, the party may apply to the court for an order allowing
disclosure under section 23G.
160. Where an arbitral tribunal has made an order authorising the
disclosure of confidential information under section 23E, a party to
the proceedings may apply to a court for an order prohibiting the
disclosure. The court may make such an order if it is satisfied that
the 'public interest in preserving the confidentiality of arbitral
proceedings' outweighs considerations that make the disclosure
desirable in the public interest or the disclosure is 'more than is
reasonable for that purpose'. The court may make an interim order
preventing disclosure while it considers whether to grant a final order
on the matter.
161. Where the mandate of the arbitration tribunal has been terminated and,
accordingly, it cannot make an order under section 23E or where the
tribunal has declined to make an order under that provision, section
23G allows a party to the arbitral proceeding to apply to a court for
an order allowing disclosure of confidential information. A court may
authorise the disclosure if it is satisfied that the 'public interest
in preserving the confidentiality of arbitral proceedings' is
outweighed by considerations that make the disclosure desirable in the
public interest and the disclosure is 'no more than is reasonable for
that purpose'.
Death of a party to an arbitration agreement
162. This item inserts a new subsection 23H into the Act which would
address the consequences of the death of a party to an arbitration
agreement. This is a matter on which both the Act and the Model Law
are silent. The effect of this provision is to provide that the death
of a party does not discharge the agreement or revoke the authority of
an arbitral tribunal and provides that the arbitration agreement is
enforceable against the personal representative of the deceased.
However, the provision does not affect the operation of any law which
would extinguish a right of action as a result of the death of the
party.
163. The amendments made by this item apply in relation to agreements
entered into on or after the commencement of the item (the day of Royal
Assent) - see Item 32. Item 32 also provides that nothing would
prevent the parties to an agreement entered into before the
commencement of this item from adopting these amendments to the Act by
way of subsequent agreement.
Evidence and security for costs
164. By repealing section 21 of the Act and inserting a 'cover the field'
provision (see Item 16) the Bill removes any recourse the parties may
have to the provisions of State and Territory arbitration legislation
concerning international commercial arbitration. The Bill compensates
for this by inserting additional provisions into the Act that would
provide for the parties to obtain court assistance in the form of
subpoenas and other orders. These are the powers contained in the
State and Territory Acts that are most frequently relied on by parties
to 'supplement' the Act.
165. One concern expressed by stakeholders has been that in removing
recourse to State and Territory laws parties will no longer be able to
access section 47 of the Commercial Arbitration Acts, which provides:
General power of the Court to make interlocutory orders
The Court shall have the same power of making interlocutory orders for
the purposes of and in relation to proceedings as it has for the
purposes of and in relation to proceedings in the Court.
166. Parties rely on this provision, in particular, to seek two kinds of
assistance from the courts that are not available through the interim
measures regime in the Model Law - (a) orders for security for costs
and (b) orders allowing for the inspection or photographing of evidence
or taking samples from, making observations of, or conducting
experiments on any evidence.
167. This type of assistance is available in a number of foreign
jurisdictions, including: Mauritius and New Zealand (security of costs
only), as well as Hong Kong, Scotland and the United Kingdom.
168. One of the key conditions attached to the decision to provide that the
Act covers the field for the purposes of international commercial
arbitration was that parties would not be disadvantaged by no longer
having access to State and Territory arbitration laws. It is well
understood that the Model Law is not complete on its own terms.
169. The provision of security for costs protects parties that are the
subject of ill-considered actions while orders with respect to evidence
may be critical to ensuring a tribunal can make a decision based on the
most relevant and accurate facts.
170. This item inserts new sections 23J and 23K into the Act.
171. New section 23J deals with orders with respect to evidence. These
allow an arbitral tribunal to order various matters such as allowing
the tribunal or a person to inspect, photograph, observe or conduct
experiments on evidence in the possession of a party to the proceedings
and allowing the tribunal or a person to take a sample of such
evidence.
172. A person other than the tribunal will only be specified under an
evidence order to conduct experiments etc if they are a party to a
proceeding, an expert appointed by the tribunal under Article 26 of the
Model Law, or, with the permission of the tribunal, an expert appointed
by a party.
173. New section 23K allows for the tribunal to order that a party to the
arbitral proceedings pay security for costs. Security for costs helps
to protect parties from frivolous or vexatious actions and is
particularly important where the ability of a party taking a matter to
arbitration to pay for the costs of the other party is in doubt.
Whether security for costs is payable would be entirely at the
discretion of the tribunal.
174. Subsection 23K(2) provides that the tribunal cannot make an order for
security for costs solely on the basis that the party is not ordinarily
resident in Australia, is incorporated under the law of a foreign
country or is a corporation or association whose central management or
control is exercised in a foreign country. This is intended to protect
foreign parties in arbitration from discrimination, thus ensuring
Australia is an attractive venue for foreign businesses to resolve
their disputes. This is similar to the approach taken in Hong Kong,
Singapore and the United Kingdom.
175. It is important to distinguish section 23K from Article 17E of the
Model Law which allows the tribunal to require a party requesting an
interim measure under Article 17 to provide appropriate security with
respect to that measure. Section 23K is of broader application and
applies to all aspects of the arbitration.
176. Both sections 23J and 23K operate as interim measures under the Model
Law. In particular, this means that the provisions of the Model Law
relating to interim measures in Articles 17A and 17D to 17J will apply
to them. For example, they will be enforceable under Article 17H just
as any other interim measure and will also be able to be granted by a
court under Article 17J.
177. The amendments made by this item apply in relation to agreements
entered into on or after the commencement of the item (the day of Royal
Assent) - see Item 32. Item 32 also provides that nothing would
prevent the parties to an agreement entered into before the
commencement of this item from adopting these amendments to the Act by
way of subsequent agreement.
178. See also Item 11, Item 16 and Item 32.
19. Subsection 25(1)
179. Section 22 of the Act provides that any or all of sections 23 to 27
apply only if the parties to an arbitration agreement have agreed that
they will apply to a dispute that has arisen or may arise between them.
In other words, section 22 provides that these provisions apply on an
'opt-in' basis. However, sections 25 to 27 are all prefaced with the
words 'unless the parties to an arbitration have (whether in the
agreement or in any other document in writing) otherwise agreed'.
This suggests that these sections apply on an 'opt-out' basis in
contradiction to section 22.
180. This item amends subsection 25(1) by omitting the words 'unless the
parties to an arbitration agreement have (whether in the agreement or
in any other document in writing) otherwise agreed, where' and
substituting 'Where'. This means the application of the provision is
now governed exclusively by section 22 and applies on an 'opt in'
basis.
181. Item 20 and Item 21 make corresponding amendments to sections 26 and
27 respectively.
182. The amendment made by this item applies in relation to arbitration
agreements entered into on or after the commencement of the item (the
day of Royal Assent) - see Item 32. Item 32 also provides that nothing
would prevent the parties to an agreement entered into before the
commencement of this item from adopting this amendment to the Act by
way of subsequent agreement.
183. See also Item 20, Item 21 and Item 32.
20. Section 26
184. Section 26 of the Act allows the arbitral tribunal to direct that
interest is payable on any amount payable under an arbitral award that
is not paid from the day the award is made (or another date specified
in the award).
185. This item repeals section 26 and substitutes a redrafted provision.
While this provision is substantively similar there are three
significant changes. First, as with Item 19 and Item 21, the words
'unless the parties to an arbitration agreement have (whether in the
agreement or in any other document in writing) otherwise agreed' have
been omitted so that the application of the provision is now governed
exclusively by section 22 and applies on an 'opt in' basis. Secondly,
the provision now allows the tribunal to direct the payment of compound
interest. Thirdly, the provision has been restructured in the
interests of clarity.
186. The amendment made by this item applies in relation to an award made
on or after the commencement of the item (the day of Royal Assent) -
see Item 32. Item 32 also provides that nothing would prevent the
parties to an agreement entered into before the commencement of this
item from adopting these amendments to the Act by way of subsequent
agreement.
187. See also Item 19, Item 21 and Item 32.
21. Subsection 27(1)
188. This item amends subsection 27(1) by omitting the words 'unless the
parties to an arbitration agreement have (whether in the agreement or
in any other document in writing) otherwise agreed, the' and
substituting 'The'. This means the application of the provision is now
governed exclusively by section 22 and applies on an 'opt in' basis.
The reasons for the amendment are discussed at Item 19.
189. The amendment made by this item applies in relation to arbitration
agreements entered into on or after the commencement of the item (the
day of Royal Assent) - see Item 32. Item 32 also provides that nothing
would prevent the parties to an agreement entered into before the
commencement of this item from adopting this amendment to the Act by
way of subsequent agreement.
190. See also Item 19, Item 20 and Item 32.
22. At the end of subsection 27(2)
191. Controlling costs in arbitration proceedings is critical given that
one of the main reasons parties choose arbitration to resolve their
disputes is that it is less costly than litigation.
192. Section 27 of the Act allows the arbitral tribunal to determine costs
at its discretion. Section 27(2) provides that in making an
arbitral award, an arbitration tribunal may:
a) direct to whom, by whom, and in what manner, the whole or any part of
the costs that it awards shall be paid;
b) tax or settle the amount of costs to be so paid or any part of those
costs; and
c) award costs to be taxed or settled as between party and party or as
between solicitor and client.
193. This item will insert a new paragraph in subsection 27(2) that will
allow an arbitration tribunal, in making an award, to 'limit the amount
of costs that a party is to pay to a specified amount'. Item 23 will
insert a new subsection 27(2A) that provides that if the tribunal
intends to make a direction limiting costs it must give the parties to
the arbitration agreement sufficient notice so that they can take it
into account in managing their own costs. The approach taken in these
items derives from section 65 of the Arbitration Act 1996 (UK).
194. The amendments in Item 22 and Item 23 apply in relation to arbitration
agreements entered into on or after the commencement of these items
(the day of Royal Assent) - see Item 32. Item 32 also provides that
nothing would prevent the parties to an agreement entered into before
the commencement of this item or Item 22 from adopting these amendments
to the Act by way of subsequent agreement.
195. See also Item 22 and Item 32.
23. After subsection 27(2)
196. See Item 22.
Item 23A Section 28
197. Section 28 of the Act provides a limited immunity provision for
arbitrators in the course of exercising their arbitral functions. This
item repeals this provision and inserts a new immunity provision.
198. The new provision differs from section 28 in two ways. First, it is
drafted in a more contemporary manner providing a broader immunity
coverage but limited by a 'good faith' requirement. This provides a
more appropriate balance of rights and interests as between arbitrators
and parties.
199. Secondly, the provision extends to an entity charged with appointing
arbitrators to an arbitral tribunal. This occurs in a number of
situations under the Act and the Model Law. For example, under Article
11(3), where the parties have not agreed upon an appointment process
for an arbitral tribunal consisting of three arbitrators, each party
chooses one arbitrator and these two arbitrators then choose a third.
Under Article 11(4), where the procedure agreed by the parties breaks
down, either party may request the court, or another party appointed
for this purpose, to make the appointment or appointments. In all such
cases the arbitrator or other entity is given immunity under this
amendment provided they act in good faith. The extension of immunity
in this regard complements new section 18 which allows for the
appointment of a court or other body to act as an appointing authority.
While courts already enjoy wide immunity, should another body be
designated to perform these functions they would not currently enjoy
any immunity.
200. See also Item 13
23B At the end of Division 4 of Part III
201. This item inserts a new section 30A addressing severability into
Division 4 of Part III of the Act. The new section sets out the
various constitutional heads of power upon which the Bill can draw if
its operation is expressly confined to acts or omissions under those
constitutional powers.
Amendments to Part IV of the Act
202. The following items amend Part IV of the Act which gives effect to
Australia's obligations under the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States done
at Washington on 18 March 1965. The Convention provides, amongst other
things, for the recognition and enforcement of awards made by the
Arbitral Tribunal of the International Centre for Settlement of
Investment Disputes.
24. Subsection 35(2)
203. Section 35 of the Act provides for the enforcement of awards made
under the Convention. Subsection 35(2) provides that an award may be
enforced in the Supreme Court of a State or Territory 'as if the award
had been made in that State or Territory in accordance with the law of
the State or Territory'. For the same reasons as outlined at Item 5,
which amends subsection 8(2) of the Act, this item amends subsection
35(2) of the Act to provide that an award may be enforced by a State or
Territory court as if the award were a judgment or order of that court.
204. The amendment made by this item applies in relation to proceedings to
enforce an award brought on or after the commencement of the item (the
day of Royal Assent) - see Item 33.
205. See also Item 5 and Item 33.
25. Subsection 35(4)
206. Jurisdiction to enforce awards made by the Arbitral Tribunal of the
International Centre for Settlement of Investment Disputes was
conferred on the Federal Court of Australia by the Federal Justice
System Amendment (Efficiency Measures) Act which inserted subsection
35(4) into the Act. To ensure consistent phraseology with the
amendments contained in Item 24, this item will repeal section 35(4)
and substitute a new provision to the same effect.
207. The amendment in this item applies in relation to proceedings to
enforce an award brought on or after the commencement of the item - see
Item 33.
208. See also Item 6, Item 24 and Item 33.
26. After Part IV
209. Item 26 inserts a new Part V (General Matters) into the Act that deals
with matters of interpretation and provides a new regulation making
power into Part V.
210. A concern raised consistently during the Review of the Act was that
courts did not have sufficient guidance when interpreting the Act -
particularly with regard to the principles that underpin arbitration
and the international aspect of the operation of the Act.
211. This item inserts a new section 39 into the Act which addresses
matters to which courts must have regard when doing any of the
following things:
a) exercising a power or performing a function under the Act
b) exercising a power or performing a function under the Model Law
c) exercising a power or performing a function under an agreement or award
to which the Act applies
d) interpreting the Act or the Model Law, or
e) interpreting an agreement or award to which the Act applies.
212. In doing any of these things a court must have regard to the objects
of the Act in section 2D (see Item 1). These objects stress the
importance of arbitration in facilitating international trade and
commerce and the fact that the Act is giving effect to three
international instruments. The court must also have regard to the fact
that: (a) arbitration is an efficient, impartial, enforceable and
timely method by which to resolve commercial disputes and (b) awards
are intended to provide certainty and finality.
213. The intention of this provision is to assist the courts in carrying
out the important protective role they play with respect to
international commercial arbitration while ensuring that this role is
minimised to what is necessary in the circumstances.
214. For completeness, in interpreting the Model Law, courts must have
regard to Article 2A which was inserted by the 2006 amendments (see
Item 11). Article 2A(1) states that 'in the interpretation of this
Law, regard is to be had to its international origin and to the need to
promote uniformity in its application and the observance of good
faith'.
215. Ensuring that the Model Law is interpreted consistently with
approaches taken internationally is important in ensuring that
Australia is an attractive venue for the conduct of international
arbitration. Divergent interpretations undermine the purpose behind
the Law, which is to establish a common approach to arbitration
throughout the world and hence promote international trade and
commerce.
216. The amendments made by this item apply to the exercise of a power, the
performance of a function, the interpretation of the Act, the
interpretation of the Model Law or the interpretation of an agreement
or award on or after the commencement of the item (the day of Royal
Assent) - see Item 34.
217. The Act does not currently contain a regulation making power. New
section 18 allows the nomination of a court or other body to act as an
appointing authority for arbitrators under the Model Law. Such a
nomination is made by way of regulations. This item inserts a
regulation making power into the Act under new section 40, to
facilitate regulations being made under new section 18. The power is
stated in general terms to allow for future provisions that would
require the making of regulations.
218. See also Item 1, Item 11, Item 13 and Item 34.
27. Schedule 2
219. Schedule 2 to the Act sets out the Model Law. Currently, schedule 2
sets out the Model Law in the form it was originally adopted in 1985.
This amendment repeals schedule 2 and inserts a new schedule 2 which
sets out the Model Law as amended on 7 July 2006. The new schedule
reflects the amendments discussed at Item 11.
220. See also Item 11.
Part 2 - Application
221. The items in Part 2 of Schedule 1 set out the application for items in
Part 1. Substantive comments on the application of particular items
are addressed under each substantive item and not in this part of the
Memorandum.
28. Application of items 2 to 4
222. See Item 2 to Item 4.
29. Application of items 5 to 9
223. See Item 5 to Item 9.
30. Application of item 10
224. See Item 10.
31. Application of item 14
225. See Item 14.
32. Application of items 18 to 23
226. See Item 18, Item 19, Item 20, Item 21, Item 22 and Item 23.
33. Application of items 24 and 25
227. See Item 24 and Item 25.
34. Application of item 26
228. See Item 26.
35. Definitions
229. This item provides definitions for the use in this part of Schedule 1
providing that foreign award has the same meaning as in Part II of the
Act and Model Law has the same meaning as in Part III of the Act.
-----------------------
[1] UNCITRAL, Report of the United Nations Commission on International
Trade Law on the work of its thirty-ninth session, 2006, (A/60/17), Annex
II.
[2] Ibid.
[3] [1993] AC 646 at 670 per Lord Goff of Chieveley.
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