Refusing a foreign arbitration award
In a rare decision refusing to enforce a foreign arbitration award, on 25 June 2021 the Full Court of the Federal Court confirmed that a party seeking to enforce an international award in Australia must have complied with terms of the arbitration agreement when appointing the tribunal. Max Bonnell and Sarah Harris of Henry William acted for the successful appellant.
A dispute arose in Qatar between an Australian company, Hub Street Equipment Pty Ltd, and Energy City Qatar Holding Company, after their contract was terminated by Energy City. The arbitration agreement between Hub and Energy City provided that any arbitration was to be commenced by one party giving written notice to the other, after which each party had 45 days in which to nominate an arbitrator. The two arbitrators nominated by the parties were then to choose a third arbitrator, who was to chair the tribunal.
Instead of following this procedure, however, Energy City did not provide Hub with a notice commencing the arbitration, or with any opportunity to nominate an arbitrator. Energy City chose to approach a court in Qatar and request that it appoint the arbitral tribunal under Qatari arbitration law. The court appointed a tribunal and the arbitration proceeded, although Hub did not participate. The tribunal delivered an award which Energy City then sought to enforce against Hub in Australia.
The Full Court’s decision is important because it emphasises that:
Under the New York Convention and the International Arbitration Act, a party is entitled to resist enforcement of an award if it was made by a tribunal that was not properly constituted in accordance with the arbitration agreement;
Where a foreign court has appointed a tribunal, a party who believes that the appointment is invalid can object to it in that foreign court; but if it doesn’t, it does not lose the right to resist enforcement of the award in any other jurisdiction;
The composition of the arbitral tribunal is “fundamental to the structural integrity of the arbitration”, so that the court ought not to exercise any discretion it possesses to enforce an award made by a tribunal that was not properly appointed.
International arbitration remains a highly effective mechanism for resolving cross-border disputes, and Australian courts continue to enforce international awards with very few exceptions. However, this decision is a reminder that arbitrators derive their powers from the arbitration agreement, so that if they are appointed in a manner that is not consistent with that agreement, there is a high risk that their awards will be rejected.