The Australian parliament is now reviewing a Bill including four further amendments to its International Arbitration Act, after enacting two other sets of amendments in 2015. These mostly correct for drafting errors or uncertainties that have become apparent since much more extensive amendments in 2010, which included almost all the 2006 revisions to the 1985 UNCITRAL Model Law template originally adopted by Australia in 1989. By contrast, Japan adopted the 1985 UNCITRAL Model Law template only in 2003, as part of a much broader package of justice system reforms, and has not updated its legislation at all since 2003.
Such diverging approaches across the region are examined in a forthcoming book on “The Developing World of Arbitration: A Comparative Study of Arbitration Reform in the Asia Pacific“, co-edited for Hart by Hong Kong University Professors Gu Weixia and Anselmo Reyes (also formerly a judge). I was pleased to be invited to become a secondary author for the Japan chapter, with Nobumichi Teramura, a Doshisha University graduate now completing his PhD at UNSW. His main supervisor, Prof Leon Trakman, is authoring the chapter on Australia.
Below is my outline of the recent and pending amendments in Australia, with an abridged version (containing hyperlinks to further reference material) published on 13 May 2017 by the Kluwer Arbitration Blog.
“Australia’s International Arbitration Act Amendments: Rejuvenation by a Thousand Cuts?”
On 22 March 2017, with minimal fanfare, the Civil Law and Justice Amendment Legislation Bill 2017 was introduced into the upper house of the federal Parliament. Buried within this omnibus Bill were four proposed reforms to the International Arbitration Act (IAA), renamed as such in 1989 when Australia was one of the first jurisdictions to adopt the UNCITRAL Model Law (after having incorporated the New York Convention in 1974). This follows other amendments to the IAA enacted in 2015 as part of two other omnibus Bills. The series of recent amendments raises the question of whether law reform in this field is better achieved through such a piecemeal process, or instead in a more comprehensive fashion involving more extensive public consultation – at least along the lines of the IAA Amendment Act 2010 that adopted almost all the 2006 Revisions to the Model Law. A second question is whether we can or should expect further amendments to the IAA.
Schedule 2 of the Civil Law and Justice Legislation Amendment Act 2015, introduced on 29 October 2014, basically filled what Garnett and Nottage had criticised as a “legislative black hole” arising from the interaction of the 2010 IAA amendments to s21 with the introduction from 2010 of new uniform Commercial Arbitration Acts (CAAs). The latter were also based on the Model Law (instead of English arbitration legislation) but apply only to domestic arbitrations. The combined reform package resulted in no legislative support for international arbitration proceedings with the agreed seat in a state that had adopted a new CAA, where the parties had also expressly or impliedly opted out of the Model Law as permitted by the pre-2010 s21 of the IAA, if the usual presumption against retrospective legislation were applied.
The first Amendment Act in 2015 somewhat belatedly filled this lacuna by further amending s21 to clarify that its post-2010 preclusion of opting out applied to any “arbitration arising from arbitral proceedings that commence on or after the commencement of this subsection, whether the arbitration agreement giving rise to the arbitration was made before, on or after 6 July 2010”. (Fortunately there do not seem to have been any lawsuits associated with pending arbitrations that might have fallen within the black hole.) It is understandable, although still questionable – not least by those who generally oppose retrospective legislation, especially when interfering with party autonomy – why the government might not have wanted to highlight this legislative fix by enacting it instead through a more comprehensive reform Bill.
Interestingly, this amendment was not bundled together with those in the subsequent Civil Law and Justice (Omnibus Amendments) Act 2015. One reform therein again addressed a problem with the 2010 IAA amendments that had been raised soon after the new CAAs also started to be enacted. The former had added provisions providing for confidentiality in international arbitrations, but on an opt-in basis, unlike almost all other provisions added to the Model Law framework. By contrast, the CAAs had provided a similar confidential regime for domestic arbitrations, but on an opt-out basis.
Commentators soon queried this inconsistency, against the backdrop of significant survey and more anecdotal evidence that confidentiality was perceived as one (mid-level) attraction of international arbitration over litigation of commercial disputes. It also seemed ironic that the new CAAs in effect had reversed the decision of the High Court of Australia in Esso v Plowman [1995] HCA 19 (arising from a domestic arbitration) that there was no presumption of confidentiality, yet the IAA in 2010 did not equally create a presumption of confidentiality for international arbitrations seated in Australia. The Civil Law and Justice (Omnibus Amendments) Act 2015 belatedly aligned the IAA with the CAA position, by making confidentiality similarly available on an opt-out basis.
This second set of legislative reforms in 2015 also made two other less practically significant amendments, which simply aligned the IAA more closely with the New York Convention regime for enforcing foreign arbitral awards. The first repealed a quasi-reciprocity requirement contained in s8(4), even though Australia had never lodged a reciprocity reservation. The second rephrased s8(5)(a) to allow a party to resist enforcement not only if it lacked capacity under the underlying arbitration agreement, but also if another party to that agreement lacked capacity.
Practitioners and commentators on international arbitration in Australia were mostly caught by surprise by this Bill. Nor was there much forewarning of the third and latest tranche of legislative amendments. The federal Attorney-General’s Explanatory Memorandum for the Civil Law and Justice Amendment Bill 2017 states (at para 10) that the IAA amendments (set out in Schedule 7):
· “specify expressly the meaning of ‘competent court’ for the purpose of the Model Law
· clarify procedural requirements for enforcement of an arbitral award
· modernise provisions governing arbitrators’ powers to award costs in international commercial arbitrations, and
· clarify the application of confidentiality provisions to arbitration subject to the [UNCITRAL] Rules on Transparency in Treaty-based Investor-State Arbitration.”
The first corrects a further drafting error dating back to when Part III of the IAA gave force of law to the Model Law (set out in IAA Schedule 2) from 1989. Section 18 still does not specify that the Federal Court (in addition to the State and Territory Courts) is a “competent court” for the Model Law award enforcement regime under Articles 35 and 36 (or to assist tribunals in taking evidence under Article 27). Nor is the Federal Court specified for the recognition and enforcement of interim measures under Article 17H, added in the 2010 amendments. The Explanatory Memorandum (at para 307) notes that this omission “has led to costly and confusing litigation as to which courts have jurisdiction”. This presumably refers to the protracted TCL v Castel saga, where the Federal Court had to invoke instead the Judiciary Act to deal with a challenge to enforcement of an Australia-seated international arbitration award – generating calls from 2013 to amend the IAA itself. Such awards remain relatively rare, but now that Australia is belatedly attracting some international arbitrations, it is high time to fix this drafting problem.
The second proposed amendment also responds to calls to align the IAA regime with New York Convention, by amending s8(1)to clarify that a foreign award is binding between the “parties to the award” rather than between the “parties to the arbitration agreement” pursuant to which it is made. The Explanatory Memorandum notes (paras 293-5) that:
“In Altain Khuder [(2011) 282 ALR 717] the Victorian Court of Appeal held that [s8(1)] may require the award creditor seeking to enforce an award against a non-signatory to the arbitration agreement to do more than simply produce the award and the putative arbitration agreement in an application to enforce a foreign award, for the onus to shift onto the award debtor to demonstrate why the award should not be enforced. … The wording of [s8(1)] differs from that of equivalent provisions in the United Kingdom, Singapore and Hong Kong … In Dampskibsselskabet [(2012) 292 ALR 161] Foster J declined to follow the Victorian Court of Appeal in Altain Khuder, holding that the simple evidential onus cast upon the award creditor by sections 8 and 9 of the Act is to produce the award and the putative arbitration agreement without more, even if the award debtor is not named in the arbitration agreement relied on. This decision is in line with international practice and represents the approach which should be adopted in all Australian jurisdictions.”
This is again a welcome reform, as commentators since at least 2012 have generally criticised the approach adopted by the Victorian Court of Appeal. (However, a 2016 book has recently seen its attempts to grapple with the underlying New York Convention framework as the start of a shift towards a more internationalist approach among the Australian judiciary more broadly. )
Regarding the third proposed amendment, the Memorandum notes (at para 318) that IAA s27 currently “refers to an arbitral tribunal’s power to make an award as to costs and to tax or settle the amount of costs to be paid and to award costs as between party and party or solicitor and client. The references to taxing costs on a party and party or solicitor and client basis are outmoded and inflexible in contrast to current practice in international arbitration. This amendment would align Australian practice with international standards and provide Australian arbitral tribunals with more flexibility in making costs awards. It would be a matter for the tribunal to settle an appropriate approach to awarding costs.”
Lastly, the Memorandum explains (from para 311) that s22 will be amended to exclude the opt-out confidentiality provisions where parties to an Australia-seated arbitration have agreed to apply the UNCITRAL Transparency Rules, which (paras 312-3):
“provide that certain information relating to arbitrations to which they apply are not confidential (subject to certain exceptions). The Transparency Rules apply to investor-State arbitrations commenced pursuant to a treaty concluded after 1 April 2014, if that treaty provides for arbitration under the UNCITRAL Arbitration Rules (as revised in 2010). However, the application of the Transparency Rules to investment arbitrations commenced pursuant to investment treaties concluded prior to this date is governed by the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (2014) (Transparency Convention). The Transparency Convention provides that States parties agree to apply the Transparency Rules to investment arbitrations to which they are a party where the claimant investor’s State is also a party, or where the investor agrees to their application.
Australia is not presently a party to the Transparency Convention. However, should the parties to an investment arbitration, which is to be conducted subject to the Transparency Convention, agree that the seat of the arbitration should be in Australia, this amendment would prevent any conflict between the IAA and the Transparency Convention. This broadens the scope of arbitration work which can be conducted in Australia under the IAA.”
The Attorney-General does not indicate that his Department from at least 2 March 2017 was undertaking informal consultations as to whether Australia should ratify the Convention (which will enter in force six months after Switzerland’s ratification on 18 April 2017 ). Ratification seems a no-brainer, given longstanding but growing concerns about transparency in investor-state arbitration associated with the greater public interests involved compared to commercial arbitration. Ratification is also important to give the revised s22 more “bite”, since Australia has many earlier BITs allowing arbitration under UNCITRAL Rules but lacking transparency provisions, including the failed challenge by Philip Morris.
Nonetheless, even Australia’s recent treaties allowing investor-state arbitration have not adopted the Transparency Rules – preferring instead to build in specific transparency provisions. Some commentators on the Bill have referred to the Korea-Australia FTA, signed on 8 April 2014. However, Side Letters exchanged on that date confirm that both countries will consult as the future application of the Transparency Rules, but until any separate agreement they will not apply. There are similar Side Letters for the China-Australia FTA signed on 17 June 2015. Australia may be better able to negotiate application of the Transparency Rules with both countries after committing to the Transparency Convention, thus extending those Rules to pre-2014 treaties allowing for UNCITRAL Rules arbitration. Nonetheless, it is questionable whether this amendment will lead in practice to much more “arbitration work” in Australia.
Overall, the latest set of IAA amendments usefully completes rectification of various legislative drafting errors and uncertainties associated with Australia’s incorporation of international arbitration instruments. The 2010 amendments had already added s8(3A) to clarify belatedly that the listed grounds for refusing enforcement of foreign awards were exhaustive, as envisaged by the New York Convention. Yet at least some of these problems seem to have arisen because of insufficient public consultation. Only the 2010 amendments involved the Attorney-General releasing an Issues Paper and eventually uploading an initial round of public submissions. Even then, the government made further changes to its own Bill, without it being referred to a select committee. That step could have allowed another round of submissions, as well as oral hearings, to permit deeper analysis (including how best to deal with confidentiality, including associated court proceedings ). Nor have the three subsequent sets of amendments been referred to a select committee, or even subject to a prior departmental issues paper or exposure draft. The respective Attorneys-General also have not taken the opportunity to task the Australian Law Reform Commission (ALRC) to examine such issues, in contrast for example to New Zealand in 2013.
Australia is now left with calls to deal with several more difficult IAA reform questions, reiterated also by Albert Monichino SC in 2015. These include settlement facilitation (“Arb-Med”), clarifying which parts of the Australian Consumer Law should prevent court stays or especially enforcement of international arbitration awards, and whether an indemnity costs principle should be applied to unsuccessful challenges (as for example in Hong Kong) given differences expressed among Australian judges as well as persistent delays in IAA-related court proceedings. The government should therefore heed a recent call from the NSW Law Society to engage the ALRC for a more comprehensive review of “laws that hamper Australian courts and arbitrators being able to efficiently and effectively deal with cross-border disputes”.