FEDERAL COURT OF AUSTRALIA
LLC BryanskAgrostroy v Mackies Asia Pacific Pty Limited  FCA 1180
|Case Name:||LLC BryanskAgrostroy v Mackies Asia Pacific Pty Limited  FCA 1180|
|Court:||FEDERAL COURT OF AUSTRALIA|
|National Practice Area:||Commercial and Corporations|
|Sub-area:||International Commercial Arbitration|
|Medium Neutral Citation:||WAD 153 of 2021|
|Hearing Date(s):||29 September 2021|
|Judgment Date:||29 September 2021|
|Catch-words:||ARBITRATION – application to enforce foreign arbitral award made in Russian Federation as judgment of Court – where dispute between parties referred to arbitration pursuant to arbitration agreement in contract – where arbitrators made award in favour of applicant – where no payment made by respondent in respect of award – whether requirements of s 9 of International Arbitration Act 1974 (Cth) met – application allowed|
|Decision:||THE COURT DECLARES:
1. Pursuant to s 8(3) of the International Arbitration Act 1974 (Cth), the applicant is entitled to enforce against the respondent a foreign arbitral award made in Bryansk, Russian Federation on 30 March 2021 as if the award were a judgment of the Court.
THE COURT ORDERS THAT:
2. There be judgment in favour of the applicant against the respondent in the amount of AU$422,573.15.
3. Pursuant to s 52 of the Federal Court of Australia Act 1976 (Cth) the respondent pay interest at the rate prescribed by r 39.06 of the Federal Court Rules 2011 (Cth) from 28 September 2021.
4. The respondent pay the applicant’s costs of and incidental to the application to be assessed on a lump sum basis.
|Cases Referenced:||Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu  FCA 477
Tianjin Jishengtai Investment Consulting Partnership Enterprise v Huang  FCA 767
|Legislation:||Federal Court of Australia Act 1976 (Cth) s 52
International Arbitration Act 1974 (Cth) ss 8, 9
Federal Court Rules 2011 (Cth)
|Parties:||BETWEEN: LLC ‘BRYANSKAGROSTROY’
AND: MACKIES ASIA PACIFIC PTY LIMITED (ACN 132 762 091)
|Representation:||Counsel for the Applicant:
Mr V Lemaic with Ms L Welmans
Solicitor for the Applicant:
Counsel for the Respondent:
Mr K Kelly
Solicitor for the Respondent:
Hilton Bradley Lawyers
REASONS FOR JUDGMENT
- Australia has assumed obligations under the Convention for the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration (Convention). It has taken steps to give effect to those obligations by enacting the International Arbitration Act 1974(Cth). By s 8 of the International Arbitration Act, an arbitral award made in pursuance of an arbitral agreement in a country other than Australia which is an arbitral award to which the Convention applies is binding for all purposes and may be enforced in this Court as if the award were a judgment or order of the Court.
- The applicant has obtained an arbitral award in the Russian Federation against Mackies Asia Pacific Pty Limited (ACN 131 762 091) (MAP). The award has been issued by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC). The applicant seeks to enforce the award as if it were a judgment of this Court. It seeks a declaration that it is entitled to do so and a judgment in Australian dollars in this Court that includes interest and costs as determined in the arbitration. It also seeks orders for payment of interest until the amount of the judgment is paid and orders for the costs of the present application to be fixed on a lump sum basis in accordance with the practice of the Court.
- MAP is incorporated in Australia. Its registered office is an address in Bankstown, New South Wales.
- The following affidavits were filed and read on the application:
(1) Affidavit of Dr Samuel Luttrell dated 29 June 2021.
(2) Affidavit of Mr Vlada Lemaic dated 29 June, 16 August and 28 September 2021.
(3) Affidavit of Ms Irina Suspitcyna dated 3 September 2021.
- The applicant also tendered an expert report from Ms Olga Boltenko, dealing with certain matters of Russian law.
- In addition to the matters already described, the affidavits establish that:
(1) On or around 21 May 2019, the applicant as buyer and MAP as seller entered into a contract for the supply and installation of certain goods by MAP (Contract).
(2) The Contract was expressed in counterparts, one in English and the other in Russian.
(3) The Contract provided for payment by instalments in US dollars of a total amount of $584,420.00.
(4) The Contract provided for the payment of a penalty amount of 0.2% of the Contract value for every day of delay by MAP as seller.
(5) The Contract included an arbitration agreement by which the parties agreed to submit to arbitration any disputes not resolved through negotiations within one month. The agreement to arbitrate applied to ‘any dispute, controversy or claim which may arise out of or in connection with the present Contract, or the execution, breach or termination or invalidity thereof’.
(6) The arbitration was to be settled by the ICAC in accordance with its applicable rules and regulations.
(7) The place of arbitration was specified to be Moscow, Russian Federation.
(8) The applicable substantive law was expressed to be ‘German law excluding conflict rules’ and the language of the arbitral proceedings was specified as English.
(9) The Contract specified the legal address of MAP which was the same address as the registered address of MAP.
(10) MAP did not supply the goods and a dispute arose between the parties.
(11) The applicant referred the dispute to arbitration before the ICAC.
(12) A Tribunal of three arbitrators was duly appointed.
(13) The applicant filed a statement of claim in the arbitration on or around 2 September 2020.
(14) MAP was notified of the commencement of the arbitration, the need to file a defence and the time and place of the oral hearing.
(15) MAP did not participate in the arbitration.
(16) An oral hearing took place before the arbitral tribunal on 27 January 2021 in the absence of MAP.
(17) The arbitral tribunal issued its award on 30 March 2021.
(18) The arbitral award is expressed in English. It deals with the applicant’s claim on the merits. It includes findings as to the jurisdiction of the arbitral tribunal, due notification of MAP of the arbitral proceedings, that the goods have not been supplied as agreed and the advance payment made by the applicant to MAP has not been returned to the applicant contrary to the terms of the Vienna Convention on International Sale of Goods 1980 to which both Germany and the Russian Federation are parties and the calculation of the penalty in accordance with the terms of the Contract.
(19) The arbitral award was for a total amount of $307,802.28 USD and was expressed in the following terms.
- MACKIES ASIA PACIFIC PTY LTD, Bankstown, Australia, is ordered to return to LLC ‘BryanskAgrostroy’, Bryansk, Russian Federation, the advance payment under the Contract No. D0505-14131 dated 21 May 2019 in the amount of 233 768,00 USD and penalty in amount of 53 766,64 USD.
- MACKIES ASIA PACIFIC PTY LTD, Bankstown, Australia, is ordered to reimburse to LLC ‘BryanskAgrostroy’, Bryansk, Russian Federation for its expenses caused by payment of the arbitration fee in the amount of 20,267,64 USD.
(20) MAP has been served with a copy of the award at its registered office.
(21) No payment has been made by MAP in respect of the award.
- A duly certified copy of the award has been produced to the Court.
- The Russian Federation is a party to the Convention.
- On the evidence led by the applicant, the requirements of s 9 of the International Arbitration Actare met and I am satisfied that the award is a foreign award for the purposes of the International Arbitration Act.
- MAP has filed a notice of opposition (Notice). It is expressed in the following terms:
- The Respondent was not given proper notice of the appointment of the arbitrators or of the arbitration proceedings before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, which made the award dated 30 March 2021 which is the subject of the Applicant’s claim, and as a result the Respondent was unable to present its case in the arbitration proceedings.
- The Respondent intends to make an application for the setting aside or suspension of the award dated 30 March 2021, and intends to make an application for the adjournment of these proceedings pursuant to s 8(8) of the International Arbitration Act 1974(Cth) to allow the application to be determined.
- As was recently stated by Middleton J in Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu FCA 477 at ‑, the party against whom a foreign award has been made must satisfy the Court that it should not enforce the award. As the Court may only refuse to enforce a foreign award in the circumstances mentioned in s 8(5) or s 8(7) of the International Arbitration Act, the relevant party, in this case MAP, must demonstrate by evidence the applicability of either of those provisions. MAP has not put on any evidence and therefore has not done so.
- In addition, under s 8(8) of the International Arbitration Actthe Court has power to adjourn the application in the circumstances there provided which require the Court to be ‘satisfied that an application for the setting aside or suspension of the award has been made to a competent authority of the country in which, or under the law of which, the award was made’.
- On the evidence, MAP has known about the award for a number of months. Yet, it has made no application to set aside the award and provides no explanation for its failure to do so. Counsel appearing for MAP did not seek to adduce any evidence or to advance any case in support of an adjournment.
- In the circumstances, I am satisfied that the applicant is entitled to have the award recognised and enforced in Australia. Further, it may be enforced in this Court as if it were a judgment of this Court. The appropriate course is for a declaration to be made and in order to enable the award to be enforced as a judgment of this Court in accordance with the rights conferred by the International Arbitration Act, for judgment in the amount of the award to be ordered in favour of the applicant.
- As the award is to be enforced in Australia, it is appropriate that the judgment be expressed in Australian currency: Tianjin Jishengtai Investment Consulting Partnership Enterprise v Huang FCA 767 at ‑. That is the course pressed for by the applicant. On the evidence, using the foreign exchange rate published by the Reserve Bank of Australia on 27 September 2021 the total amount of the award expressed in Australian dollars is $422,573.15.
- The applicant also seeks an order that there be interest payable on the amount for which judgment is entered from the date judgment is entered. It seeks an order that interest be paid at the rate of 6.10% pa based upon s 52 of the Federal Court of Australia Act 1976 (Cth). In accordance with that provision, a rate has been prescribed by the Federal Court Rules 2011 (Cth). The prescribed rate moves every six months and it is currently 6.10%.
- There should also be an order for the applicant’s costs of and incidental to the application to be paid by MAP. The applicant seeks to have those costs fixed. The materials relied upon to support a lump sum costs order were only made available to the solicitors acting for MAP the evening before the hearing. It is appropriate for MAP to have an opportunity to consider and respond to those materials. In the circumstances, the appropriate order is for costs to be assessed on a lump sum basis. MAP will be given an opportunity to respond to those materials and I will determine the quantum of the costs on the papers.
- For the above reasons, I made orders declaring that the applicant is entitled to enforce the award and for judgment against MAP in favour of the applicant in the amount sought, together with interest and an order for the costs to be paid by MAP such costs to be assessed on a lump sum basis.
|I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.|
Dated: 29 September 2021
|Industrius D.O.O v IDS Industry Service and Plant Construction South Africa (Pty) Ltd (2020/15862)  ZAGPJHC 350
IN THE HIGH COURT OF SOUTH AFRICA
|Court:||HIGH COURT OF SOUTH AFRICA|
|Parties||INDUSTRIUS D.O.O. Applicant
IDS INDUSTRY SERVICE AND PLANT
CONSTRUCTION SOUTH AFRICA (PTY) LTD Respondent
|DIVISION:||GAUTENG LOCAL DIVISION, JOHANNESBURG|
|DATE OF HEARING:||28 April 2021|
|DATE OF JUDGMENT:||20 August 2021|
|CASE MAY BE CITED AS:||Industrius D.O.O v IDS Industry Service and Plant Construction South Africa (Pty) Ltd (2020/15862)  ZAGPJHC 350|
|MEDIUM NEUTRAL CITATION:|| ZAGPJHC 350|
|Representation:||Applicant’s Counsel: Adv S Du Toit
Adv I Currie
Instructed by: Knowles Husain Lindsay Inc.
Respondent’s Counsel: Adv HJ Fischer
Instructed by: Spellas Lengert Kuebler Braun Inc.
Delivered: By transmission to the parties via email and uploading onto Case Lines the Judgment is deemed to be delivered. The date for hand-down is deemed to be 20 August 2021
 This is an opposed application that the arbitral award given on 9 June 2020 in the arbitration proceedings between the applicant (“Industrius”) and the respondent (“IDS”) be made an order of court. Industrious seeks an order that IDS pay its costs in the main arbitration and counterclaim.
 Industrius D. O. O. is a foreign company registered in terms of the laws of the Republic of Croatia as “Drustvo s orgrani-cemon odgovornoscu” that is a limited liability company, with its place of business and registered address at H[….],241 O[….] S[….], B[….] 11, Croatia.
 IDS Industry Service and Plant Construction South Africa (Pty) Ltd (“IDS”) is a private company registered in terms of the laws of the Republic of South Africa with its registered address at 7 L[….] Park, 83 A[….] Road, D[….], Boksburg.
 A dispute arose between the parties during 2017. Consequently, the parties decided to refer the dispute to arbitration and concluded an arbitration agreement. They agreed that the arbitration tribunal would be constituted by a single arbitrator, Mr KJ Trisk SC and that the arbitration would be conducted under the rules of the Association of Arbitrators (“AOA Rules”).
 The agreement itself is an arbitration agreement as defined in article 7 of the International Commercial Arbitration (“Model Laws”) as incorporated by the International Arbitration Act 15 of 2017 (“the Act”) for enforcement of an international arbitral award and this is common cause between the parties. In terms of the agreement, which was in writing, the parties agreed to submit certain disputes which had arisen in respect of the parties’ contractual relationship. It is also common cause between the parties that the arbitration was contemplated by article 1(3) of the Model Law because at the time of the conclusion of the arbitration agreement the parties had their places of business in different countries. The seat of arbitration in terms of article 20 of the Model Law was South Africa.
 The disputes referred to arbitration consisted of a contractual claim by Industrious who was the claimant in the arbitration and a counterclaim by IDS, the defendant in the arbitration.
 IDS participated in the arbitration proceedings. These proceedings included several interlocutory applications which were conducted during 2018 and 2019. The arbitration was scheduled to commence on 25 May 2020. IDS ceased participation in the proceedings during January 2020. This was due to a dispute that arose, apparently, between itself and its former attorneys regarding payment of fees. The arbitrator invited IDS to bring an application for postponement of the hearing and the invitation was ignored by IDS. The latter also failed to properly appoint attorneys to represent it.
 On 25 May 2020, and in the absence of IDS, the arbitration hearings proceeded. The arbitrator gave his final award in the arbitration on 9 June 2020 in terms of which he upheld the Industrius’ claim and dismissed IDS’s counter-claim. Industrius claimed payment on various unpaid invoices in the sum of € 2,75 million plus interest and costs of suit.
 It is the award set out in  above that Industrius seeks to be made an order of court which IDS opposes. IDS does not dispute that the award is binding on it. Furthermore, IDS has not challenged the award or applied to have it reviewed and set it aside in terms of Model Law, which is the exclusive recourse to a court against an arbitral award.
 IDS’s defence to the application for enforcement of the arbitral award is based on a separate action that it has instituted in the High Court under case number 15812/2020 seeking the same relief it bought in its counter-claim in the finalised arbitration, alternatively an interim interdict to the same effect. IDS prays that the enforcement of the arbitral award be stayed pending the finalisation of the action it has instituted against Industrius.
 IDS contends that the counterclaim was dismissed by default and avers that the purported dealing with the merits of its counter-claim by the arbitrator, in the absence of IDS is of no force and effect. It contends therefore that the issue of the counter-claim has not been determined at all and that it is free to pursue its counterclaims in the courts of South Africa.
 IDS also contends that because the counterclaim was dismissed by default, the arbitrator’s award in that regard is not final and that the doctrine of res judicata does not apply and that this is a trite principle.
 In addition, it was IDS’s submission that its claims in case no 15862/2020 have been set off and the prospects of success at trial are good and relies on article 36(1)(a)(ii) of the Model Law as the source of the Court’s power to grant the stay of the arbitral award.
 The issues that require determination are whether the grounds contended by IDS are good in law to suspend the enforcement of the arbitral award. To deal with each ground raised, I shall restate the legal principles governing the arbitral award in terms of the Model Law as set out below.
 International commercial dispute resolutions are governed by the Model Law, that is United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration which was adopted into South African law in terms of the International Arbitration Act, No15 of 2017 (“ the Act”). Accordingly, this dispute is regulated in terms thereof.
 The preamble of the Act provides as follows:
“To provide for the incorporation of the Model Law on International Commercial Arbitration, as adopted by the United Nations Commission on International Trade Law, into South African law; to provide anew for the recognition and enforcement of foreign arbitral awards; to repeal the Recognition and Enforcement of Foreign Arbitral Awards Act, 1977; to amend the Protection of Businesses Act, 1978, so as to delete an expression; and to provide for matters connected therewith.”
“(a) facilitate the use of arbitration as a method of resolving international commercial disputes;
(b) adopt the Model Law for use in international commercial disputes;
(c) facilitate the recognition and enforcement of certain arbitration agreements and arbitral awards; and
(d) give effect to the obligations of the Republic under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), the text of which is set out in Schedule 3 to this Act, subject to the provisions of the Constitution.”
 It is without doubt therefore that the Model Law has been incorporated in our law and applies in the Republic subject to the provisions of the Act. The parties to an international commercial dispute may refer such dispute to arbitration in terms of an arbitration agreement.
 The arbitration is an international arbitration as contemplated by Article 1(3) of the Model Law because, as already stated, at the time of conclusion of the arbitration agreement the parties’ business locations were in different countries, namely Croatia and South Africa.
 The arbitral award made in terms of the Model Law can only become impermissible to enforce under certain conditions contained in s18 of the Act, such as:
“(a) If the court finds that-
(i) a reference to arbitration of the subject matter of the dispute is not permissible under the law of the Republic; or
(ii) the recognition or enforcement of the award is contrary to the public policy of the Republic; or
(b) the party against whom the award is invoked, proves to the satisfaction of the court that—
(i) a party to the arbitration agreement had no capacity to contract under the law applicable to that party;
(ii) the arbitration agreement is invalid under the law to which the parties have subjected it, or where the parties have not subjected it to any law, the arbitration agreement is invalid under the law of the country in which the award was made;
(iii) that he or she did not receive the required notice regarding the appointment of the arbitrator or of the arbitration proceedings or was otherwise not able to present his or her case;
(iv) the award deals with a dispute not contemplated by, or not falling within the terms of the reference to arbitration, or contains decisions on matters beyond the scope of the reference to arbitration, subject to the provisions of subsection (2);
(v) the constitution of the arbitration tribunal or the arbitration procedure was not in accordance with the relevant arbitration agreement or, if the agreement does not provide for such matters, with the law of the country in which the arbitration took place; or
(vi) the award is not yet binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.”
The onus is on the party seeking the resistance of the enforcement of the arbitral award to allege and prove any of the grounds set out in s18 of the Act and the Model Law. There is no record of the averment and proof of any of the grounds as set out in s18 of the Act that is before me to prove and to persuade me that the refusal to make the arbitral award an order of this court would be justified. That alone must be the reason for the IDS’s defence to fail. I will demonstrate later why the defence as averred by IDS finds no support on the facts and the law.
 IDS has relied on the fact that it has issued a counterclaim as the basis that this court should consider refusal of the enforcement of the arbitral award. After proper inspection of the counterclaim, it is clear that it deals with the same cause of action which was before the arbitrator. The counterclaim was properly considered by the arbitrator when he made an arbitral award on 9 June 2020.
“It will be apparent from the aforegoing that I dismiss the defendant’s Counterclaim not only on the basis of there having been no appearance on behalf of the Defendant at the hearing before me on 25 May 2020 but also on the basis that the version advanced by the Defendant in its Counterclaim given the evidence which was adduced before me, it seems to me, is so improbable as to warrant rejection.”
Based on this finding by the arbitrator, I find that the contention by IDS that the counterclaim was not dealt with on merits is without any factual basis as the arbitrator clearly dealt with the merits of that counterclaim. The arbitrator was required to deal with all the disputes of the parties and in my respectful view, he did precisely that.
 If IDS was aggrieved by the arbitral award, it ought to have taken steps to challenge it and this was not done. It follows that the enforcement of the arbitral award cannot be delayed as doing that would cause an injustice to Industrius.
 On the issue whether the counterclaim can be considered to have been decided on merits the Court in United Enterprise Corporation v STX Pan Ocean Company Ltd held that a dismissal of an application can give rise to the successful raising of the exception rei judicata where regard being had to the judgment of the court which dismissed the application, the import of the order [was] clearly that on issues raised the Court found against the party which in this case is IDS in the previous proceedings and in favour of Industrius in the counterclaim arbitration proceedings. The Court furthermore held it is not the form of the order granted but the substantive question (did it deceive on the merits or merely grant absolution?) that is decisive in our law and that what is required for the defence to succeed is a decision on the merits.
 Furthermore, IDS also contends as already stated that the arbitrator erred when he made a finding on the counterclaim in the arbitral award. In Phalabora Copper (Pty) Ltd v Motlokwa Transport & Construction (Pty) Ltd the court held as follows:
“The party alleging the gross irregularity (of the arbitrator) must establish it. Where an arbitrator engages in the correct enquiry but errs either on the facts or the law, that is not an irregularity and is not a basis for setting aside an award. If parties choose arbitration, courts endeavour to uphold their choice and do not lightly disturb it. The attack on the award must be measured against these standards.”
I am of the respectful view that contending simply that the arbitrator has erred in dealing with the counterclaim on merits in the absence of IDS is not a valid ground to refuse enforcement of an arbitral award.
 From the evidence adduced by IDS in the instant application based on the subcontracts that are used in support of the counterclaim in the pending High Court action, case number 15862/2020, the subcontracts have been found by the arbitrator to be a fiction. The defence of the res judicata in those proceedings is likely to succeed against IDS.
“…tribunal should not simply issue an award as though entering judgment under the Rules of Court but rather should proceed to hear such evidence as may be tendered. Short of an express agreement between the parties, any award resolving the dispute between the parties should be made only on the available evidence. The arbitrator’s decision to hear no evidence at all resulted in an award being made simply as a procedural consequence of the respondent’s wilful absence from the arbitration and without the arbitrator bringing his mind to bear upon the issues between the parties as defined in the pleadings.”
The same conclusion cannot be made in the present case because as already stated, the arbitrator clearly articulated and dealt with all the issues before him. It can be inferred from the IDS’s inability to attack the award, that procedurally, the arbitrator cannot be faulted in the instant case.
 Over and above the grounds that IDS can raise in terms of section 18 of the Act, to ask the Court to refuse to make an award the order of this court, IDS also has recourse in terms of article 36 of the Model Law which is a mirror of section 18 of the Act.
 Under Article 36 (2) the Court may adjourn a decision on enforcement under the Model Law only where an application for setting aside or suspension of an award has been made to another court in terms of Article 36(1)(a)(v). There is no evidence on record that such application has been made or is pending.
 It is evident from the authorities quoted above that the basic principle articulated in the Act is that the Model Law is pro-enforcement of arbitral awards. The academic literature surveying judicial policy regarding arbitration in Australia and Asian-Pacific regions extrapolate this pro-enforcement approach as follows:
“In a Federal Court of Australia decision, ESCO Corporation v Brandken Resources (Pty) Ltd, Foster J interpreted these provisions in accordance with international norms:
“… a foreign arbitral award is to be enforced in Australia unless one of the grounds in s8(5) of the [International Arbitration Act] is made out by the party against whom the award is sought to be enforced or unless the public policy of Australia requires that the award not be enforced. The pro-enforcement bias of the [New York] Convention and its domestic surrogate, the IAA, requires that this Court weigh very carefully all relevant factors when considering whether to adjourn a proceeding pursuant to s8(8) of the IAA. The discretion must be exercised against the obligation of the Court to pay due regard to the objects of the IAA and the spirit and intendment of the Convention.
The pro-arbitration approach has been highlighted by a number of judges speaking and writing extra-curially. For example, Chief Justice Marilyn Warren of the Supreme Court of Victoria has said:
‘In arbitration, the directive role of the Court needs to be minimised. The focus instead, turn to ways in which the Court can support the arbitration process and enforce arbitral awards in a timely and cost effective manner.’
Additionally, Justice James Allsop observed at CIArbs Asia Pacific Conference in 2011:
‘The clear trend in judicial decision-making about arbitration in Australia [has transformed] from suspicion, to respect and support…In terms of intervention [by the judiciary], restraint is essential. Arbitration depends for its success on the informed and sympathetic attitude of the court.’
 In Australia Courts have held that in accordance with this pro-enforcement of international arbitral award in terms of the Model Law, recognition and enforcement of an arbitral award could only be denied in limited circumstances which are clearly spelt out in article 36 (1) of the Model Law:
“…which provides for the only grounds on which recognition or enforcement of an award may be refused by a competent court. The grounds are primarily, but not exclusively, concerned with independence and impartiality of the arbitrator and the fairness of the arbitral process…They do, however, include a competent court finding that the recognition or enforcement of the award would be contrary to the public policy of [Australia]
For avoidance of doubt, s19 of the IA Act states that an award is contrary to the public policy of Australia if its making was induced or affected by fraud or corruption or a breach of the rules of natural justice occurred in connection with the making of the …award. Article 5 limits the power of the court to Intervene in matters governed by the Model Law to those categories of curial intervention provided for in the Model Law.
Article 34 (1) relied upon by ICL in its separate proceedings in the Federal Court to set aside the awards, provides that recourse to a court against an arbitral award may be made only by an application for setting aside the award and only on the grounds set out in Art 34 (2), which substantially mirror those in Art 36 (1) limiting the grounds upon which a court may refuse to recognise or enforce a foreign award.”
I am of the view that our courts should have a similar approach when seized with an application for enforcement of foreign arbitral award as the Model Law is part of the laws of the Republic.
 It follows therefore, in my view, that the Act and the Model Law do not provide for the court to refuse or delay to enforcement of the award on the basis that a party has instituted other proceedings that are not related to the arbitral award or have no bearing on the finality or enforceability of the arbitral award. Equally not applicable, is an attempt by a party to set off a proven debt in terms of the arbitral award against its unproven claim in the unrelated proceedings. Staying the enforcement of an international arbitral ward under those circumstances would not accord with the spirit of the Model Law in our Republic.
 Allowing the delaying tactics in the enforcement of the arbitral award under these circumstances would be counter-productive and create an imbalance in international trade.
 Although IDS had conceded that the arbitrator was entitled to dismiss its counterclaim by default, I find it difficult to understand the basis upon which it contends that the same action which failed at the arbitration hearing can properly be pursued through action proceedings. The parties agreed to an arbitration process and once an arbitral award was made, that brought the arbitration to an end unless and until the arbitral award is set aside.
 Rule 39 (3) of the Uniform Rules provides that:
“If, when a trial is called, the defendant appears and the plaintiff does not appear, the defendant shall be entitled to an order granting absolution from the instance with costs but may lead evidence with a view to satisfying the court that the final judgment should be granted in his favour and the court, if so satisfied, may grant such judgment.”
This rule has no application to arbitrations. There is no provision under the AOL Rules permitting the arbitrator to grant absolution from the instance and in the instant case, he rightfully did not grant or purport to grant absolution from the instance and concluded the arbitration to finally resolve the parties’ disputes.
 The arbitrator was enjoined with the duty to resolve the disputes between the parties before him. In Termico (Pty) Ltd v SPX Technologies (Pty) Ltd it was held that all issues submitted to the arbitrator must be resolved in a manner that achieves finality and certainty. The award may not reserve a decision on an issue before the arbitrator or expert for another or for the court to resolve. It follows therefore that to bring a failed counterclaim before court by way of action proceedings is a proverbial flogging of a dead horse and cannot as already stated, be used as a ground to delay the enforcement of the arbitral award.
 In Telcordia Technologies Inc v Telkom SA Ltd, the court held, in considering whether an error on the side of the arbitrator in his award can be used as a ground to oppose the enforcement of the award, that:
“The fact that the arbitrator may have either misinterpreted the agreement, failed to apply South African law correctly, or had regard to inadmissible evidence does not mean that he misconceived the nature of the inquiry or his duties in connection therewith. It only means that he erred in the performance of his duties. An arbitrator ‘has the right to be wrong’ on the merits of the case, and it is a perversion of language and logic to label mistakes of this kind as a misconception of the nature of the inquiry – they may be misconceptions about meaning, law or the admissibility of evidence but that is a far cry from saying that they constitute a misconception of the nature of the inquiry.”
The dismissal of IDS’s counterclaim has been brought to finality and whether or not the arbitrator was correct in doing that should not and cannot be used as a ground to challenge the enforcement of the arbitral award.
 Another point that has been raised by IDS is that Industrius must provide security for costs before the award can be enforced. This submission must fail because it runs against the provisions of article 5 of the Model Law which provides as follows:
“In matters governed by this Law, no court shall intervene except where so provided in this Law.”
I have already dealt with instances where the court can intervene and none of those grounds find application in the matter before me.
 Based on the reasons already stated, I hold the view that Industrius has made out a case for the enforcement of the arbitral award.
 Having read the documents filed of record and having heard the submissions made by Counsel and considered the matter:
It is ordered that:
- The arbitral award given on 9 June 2020 in the arbitration proceedings between Industrious and IDS is made an order of court. As a consequence thereof:
1.1. IDS must pay the Industrius the amount of € 2 775 853.08;
1.2. IDS must pay Industrius interest on the amount in paragraph 1.1 above calculated in accordance with the following table with effect from the dates reflected in the column immediately adjacent to the amount in question and at the rate allocated in regard thereto, until date of payment:
Amount Due date Rate of Interest
€ 2 100.00 31 July 2016 10.5%
€ 3 648.00 31 July 2016 10.5%
€ 91 210.00 31 October 2016 10.5%
€ 23 104.00 31 January 2017 10.5%
€ 66 395.00 31 May 2017 10.5%
€ 297 785.30 30 June 2017 10.5%
€ 683 395.40 30 June 2017 10.5%
€ 604 319.17 31 July 2017 10.5%
€ 261 407.95 31 July 2017 10.5%
€ 629 641.90 31 August 2017 10.5%
€ 247 920.61 31 August 2017 10.5%
€ 258 794.50 30 September 2017 10.25%
€ 101 955.25 30 September 2017 10.25%
1.3. IDS must pay Industrius’s costs in the counterclaim instituted in the arbitration proceedings between Industrius and IDS.
1.4. IDS must pay Industrius’s costs in the arbitration proceedings between Industrius and IDS including:
1.4.1. The costs associated Industrius’s preparation of its defence to the counterclaim insofar as such costs are not covered by the Award set out in subparagraph 1.3 above; and
1.4.2. the costs of the arbitration; and
1.4.3. the costs incurred by Industrius in consequence of the employment of two counsel.
- IDS must pay the costs of this application.
Judge of the High Court of South Africa
Gauteng Local Division, Johannesburg
 See Admart AG v Stephen and Mary Birch Foundation Inc. US Court of Appeals for the 2nd circuit, 8 August 2006 where request for adjournment pending outcome of an arbitration in Switzerland was refused because the arbitration was not an attempt to set aside or suspend the Award.
Manchester City Football Club Ltd v Football Association Premier League Ltd and others  EWCA Civ 1110
|Judge(s):||SIR GEOFFREY VOS
THE MASTER OF THE ROLLS
– and –
SIR JULIAN FLAUX
THE CHANCELLOR OF THE HIGH COURT
– and –
LORD JUSTICE MALES
|Case Number:||A4/2021/0615 & A4/2021/0617|
|Case Name:||Manchester City Football Club Ltd v Football Association Premier League Ltd and others  EWCA Civ 1110|
|Medium Neutral Citation:|| EWCA Civ 1110|
|Date of Order:||20 July 2021|
|Date of Hearing:||30 June 2021|
|Court:||Court Of Appeal (Civil Division) [ENGLAND]|
|Registry:||Royal Courts of Justice
Strand, London, WC2A 2LL
|Parties:||MANCHESTER CITY FOOTBALL CLUB LTD
– and –
THE FOOTBALL ASSOCIATION PREMIER LEAGUE LTD & OTHERS
|Representation:||Lord Pannick QC, Paul Harris QC and David Gregory (instructed by Clifford Chance LLP) for the Appellant
Adam Lewis QC and Andrew Hunter QC (instructed by Bird & Bird LLP) for the Respondents (by written submissions only)
|Appealed From:|| EWHC 711 (Comm)|
Sir Julian Flaux C:
- Manchester City Football Club Limited (“the Club”) appeals, with the permission of Males LJ granted on 14 April 2021, against the Order of Moulder J dated 23 March 2021 that her Merits Judgment and Publication Judgment (as defined hereafter) should be published other than to the parties. The appeal concerns the circumstances in which judgments of the Court on applications under sections 67 and 68 of the Arbitration Act 1996 (“the Arbitration Act”) should be published or should remain private, applying the principles set out by this Court in City of Moscow v Bankers Trust EWCA Civ 314;  QB 207 (hereafter “City of Moscow”). There is also a preliminary question as to whether, given the terms of the relevant provisions of the Arbitration Act, this Court has jurisdiction to hear the present appeal, permission to appeal against the Order of 23 March 2021 having been refused by the judge.
- The Football Association Premier League Limited (“the PL”) is a company in which the shareholders are the clubs playing in the Premier League in a particular season (“the member clubs”). The relationship between the PL and the member clubs is governed by the articles of association and the Rules of the PL (“the Rules”).
- In December 2018, the PL commenced a disciplinary investigation into the Club after allegations about the Club appeared in various European media reports which disclosed details of confidential documents obtained from a hack of the Club’s email servers. The PL contends that the media reports contain information suggesting breaches of the Rules by the Club. During the course of its investigation, the PL requested information and documents from the Club (including copies of various documents identified in those media reports) under Rule W.1. The Club objected to disclosure of that material.
- The allegations in the media reports led to The Union of European Football Associations (“UEFA”) commencing on 7 March 2019 a formal investigation into the Club over alleged breaches of UEFA’s financial fair play (“FFP”) regulations.
- The following day, 8 March 2019, the PL announced that it had also commenced an investigation into the same allegations, releasing the following statement:
“The Premier League has previously contacted Manchester City to request information regarding recent allegations and is in ongoing dialogue with the club. The league has detailed financial regulations and strong rules in the areas of academy player recruitment and third-party ownership. We are investigating and will allow Manchester City every opportunity to explain the context and detail surrounding them.”
- Subsequent developments in the UEFA investigation have been widely reported in the media and have been publicly commented on by both the Club and the PL. That investigation initially led to the Club being banned from UEFA’s European club competitions for two years as well as being fined €30 million, but the ban was overturned and the fine reduced to €10 million by a tribunal in the Court of Arbitration for Sport (“CAS”) in July 2020. It has been reported that, whilst the CAS tribunal held that the most serious allegations against the Club could either not be proved or were time barred, the reduced fine was upheld on the basis that the Club had breached UEFA’s regulations by failing to co-operate with the investigation.
- Apart from the PL’s statement on 8 March 2019, neither the PL nor the Club has publicly commented on the PL’s investigation. By a letter dated 18 July 2019 to the Club’s then solicitors, the PL’s solicitors confirmed that the investigation process was confidential and both parties had made strenuous efforts to ensure that this was so, for example by the use of secure file transfer technology.
- On 21 August 2019, the PL issued a disciplinary complaint against the Club under Section W seeking disclosure of certain documents and information. A Commission was appointed pursuant to Rule W.21, but its composition and the disciplinary system were challenged by the Club as not sufficiently independent or impartial. Although the PL proposed an ad hoc procedure for the appointment of a new Commission, the Club objected.
- By a request dated 22 October 2019, the PL then commenced an arbitration against the Club under Section X of the Rules seeking a declaration and/or determination that the Club was obliged to provide the PL with requested documents and information and an order for specific performance of the Club’s contractual obligation to deliver up documents and information which were being withheld. Under Rule X.8 then in force, the PL provided a list of people who were on a panel from which arbitrators were to be appointed (“the Panel”). The Club appointed John Machell QC from the Panel and the PL Daniel Alexander QC, and, in accordance with the Rules, the two arbitrators then appointed a chairman, Philip Havers QC.
- The Club challenged the jurisdiction of the arbitrators, submitting to the tribunal that, on a proper construction of the Rules, the PL had no power to institute a Section X arbitration in respect of its information claim. Accordingly it was submitted that the tribunal lacked substantive jurisdiction and the arbitration could not proceed. It was also submitted that the tribunal did not have the appearance of impartiality.
- On 6 February 2020, the Rules relating to the disciplinary and dispute resolution procedures were amended at a meeting of the shareholders.
- By its Award dated 2 June 2020, the arbitration tribunal rejected the Club’s challenge to its jurisdiction and impartiality and held that it had substantive jurisdiction to hear the PL’s claim and that it did not lack the appearance of impartiality.
- On 26 June 2020, the Club then issued an application by an Arbitration Claim in the Commercial Court contending that:
(1) the tribunal lacked jurisdiction because, on the true construction of the Rules, the PL did not have the power to institute the arbitration under Section X (“the Section 67 Challenge”);
(2) the tribunal was tainted with apparent bias due to the process for appointment and reappointment to the Panel from which arbitrators could be appointed to tribunals for arbitrations instituted under Section X (“the Section 68 Challenge”); and
(3) the arbitrators should accordingly be removed under section 24 of the Arbitration Act.
- Before that application was heard, the arbitration continued. On 24 July 2020, the tribunal rejected the Club’s arguments resisting the PL’s case that it was under an obligation to provide certain documents and information to the PL. Accordingly, on 2 November 2020, the tribunal ordered the Club to provide certain documents and information to the PL and to make enquiries of third parties. That order was stayed pending the hearing of the Club’s application to the Commercial Court.
- The hearing of the Club’s application before the judge on 1 and 2 March 2021 was in private pursuant to CPR 62.10. In her judgment dated 17 March 2021 (“the Merits Judgment”) the judge dismissed the application. In relation to the Section 67 Challenge, she concluded that the language of Rule X.2 which permitted “all disputes” to be referred to arbitration is not limited by Section W of the Rules (which concern the powers of the PL to deal with suspected or alleged breaches of the Rules). In relation to the Section 68 Challenge she concluded that applying the decision of the Supreme Court in Halliburton Company v Chubb Bermuda Insurance Ltd  UKSC 48 (hereafter “Halliburton”), the matters relied on by the Club (the remuneration of the arbitrators from being on the Panel, the process by which they were appointed to the Panel under the Rules and the control by the PL over reappointment, so the arbitrators lacked security of tenure) did not satisfy the test that a fair minded and informed observer would conclude that there was a real possibility that the arbitrators were biased. Accordingly the section 24 application was also dismissed.
- By her Order dated 17 March 2021, the judge dismissed the Arbitration Claim and refused permission to appeal to the Court of Appeal, giving as her reasons: (i) that the construction issue was decided on the basis of the application of the principles in Wood v Capita Insurance Services Ltd  UKSC 24; (ii) that there was no other compelling reason for an appeal as the implications for other clubs was limited since as members of the PL they collectively had power to change the Rules and (iii) that the issue of apparent bias had been decided applying the test of general application approved and having regard to the features of arbitration identified by the Supreme Court in Halliburton.
The judgment under appeal
- When the judge sent out the draft of the Merits Judgment to the parties to provide typographical corrections, the covering email indicated that she was minded to publish that judgment. Both parties provided written submissions on the issue of publication and indicated that they were content for the judge to deal with the issue on the papers without the need for a further hearing. Both parties opposed publication, albeit the PL did so subject to an important caveat or condition to which I will return.
- By the Publication Judgment dated 24 March 2021, the judge rejected those submissions opposing publication and determined that the Merits Judgment should be published. Having set out the parties’ submissions, at  she summarised the key principles relevant to the case before her derived from the judgment of Mance LJ (as he then was) in City of Moscow. It was not suggested by Lord Pannick QC on behalf of the Club that this summary of the principles by the judge was inaccurate:
- i) “Whatever the starting point or actual position during a hearing [in other words even if the hearing is in private under CPR 62.10], it is, although clearly relevant, not determinative of the correct approach to publication of the resulting judgment” (at ).
- ii) “Further, even though the hearing may have been in private, the court should, when preparing and giving judgment, bear in mind that any judgment should be given in public, where this can be done without disclosing significant confidential information. The public interest in ensuring appropriate standards of fairness in the conduct of arbitrations militates in favour of a public judgment in respect of judgments given on applications under s.68. The desirability of public scrutiny as a means by which confidence in the courts can be maintained and the administration of justice made transparent applies here as in other areas of court activity under the principles of Scott v. Scottand article 6. Arbitration is an important feature of international, commercial and financial life, and there is legitimate interest in its operation and practice…” (at  emphasis added [by the judge]).
iii) “The factors militating in favour of publicity have to be weighed together with the desirability of preserving the confidentiality of the original arbitration and its subject-matter” (at ).
- iv) A party inviting the court to protect evidently confidential information about a dispute must not necessarily prove positive detriment, beyond the undermining of its expectation that the subject-matter would be confidential (at ).
- In the Discussion section of her judgment the judge then considered whether publication would lead to disclosure of “significant confidential information”. She noted that the first such piece of confidential information identified by the Club was the existence of a dispute concerning the PL’s request for documents and information. The judge considered this could not be considered “significant” confidential information for two reasons. First, as a result of the PL’s public statement in March 2019 (as quoted in  above), the existence of the investigation had been in the public domain for some time. Whilst it was not in the public domain that the PL had requested documents and information and that the Club had resisted the request, the judge considered that any reasonable reader of the public statement would be likely to infer that the investigation might involve the production of documents and information so that she considered that it was difficult to see how it could be viewed as “significant” confidential information.
- Second, she considered that the Merits Judgment did not contain any significant details relating to the disclosure dispute: the judgment does not state the nature of the documents and information requested or the significance of those documents and information to the wider investigation and it does not state the outcome of the arbitration other than on procedural matters.
- The judge said at  that the only confidential information that would be disclosed is the existence of the dispute and the arbitration. Where it was already public knowledge that the underlying investigation was taking place, she did not regard that confidential information as significant. At  she noted: “the desirability of preserving the confidentiality of the original arbitration and its subject-matter” referred to at  of City of Moscow, but said that there was nothing about the details of the underlying dispute in the Merits Judgment. At , she said that, whilst the expectation of the parties of confidentiality in arbitration was a factor to be taken into account, it was not determinative, even where both parties are opposed to publication.
- The judge went on to consider whether publication would result in real prejudice or significant detriment to the Club, whilst accepting that it was not necessary for the Club to prove detriment. She considered that, given that the investigation into the alleged breach of the Rules was already public knowledge, although publication of the Merits Judgment might attract media interest it was difficult to see any detriment. She took into account the Club’s legitimate interest in ensuring that a fair procedure was followed and noted that, whilst the Merits Judgment made reference to the PL’s submission that the Club’s challenge was tactical, it also set out the Club’s submissions in response and that neither the tribunal nor the Merits Judgment made such a finding. Whilst the Club may wish to avoid further media attention regarding the investigation, it was difficult to see any real prejudice from disclosure of the existence of the dispute as to production of documents and information.
- The Club had also submitted that public comment and press speculation would prejudice the future investigation. The judge said it was difficult to see how that could arise when the investigation was carried out by the PL, which was already privy to the information said to be confidential and should a Commission or Appeal Board be appointed under the Rules as now amended those appointments were made by a senior judicial figure. If the matter went to arbitration, the arbitrators had each to be a “Suitably Qualified Person”, that is a barrister or solicitor of 10 years standing and “independent of the party appointing him and able to render an impartial decision” (Rule X.10). The judge could not see how public comment or press speculation would undermine the independence of these individuals and prejudice the future investigation.
- In conclusion at , the judge said it was desirable for any judgment to be made public in order to ensure public scrutiny and the transparent administration of justice providing “this can be done without disclosing significant confidential information”. The confidential nature of arbitration had to be weighed against the public interest in ensuring appropriate standards of fairness in the conduct of arbitrations. She concluded at - that the desirability of public scrutiny and the transparent administration of justice outweighed the competing considerations against publication so that the Merits Judgment ought to be published.
- On 26 March 2021, the judge refused permission to appeal against the Publication Judgment. She held that she had applied the principles in City of Moscowand neither taken account of irrelevant matters nor failed to take account of relevant matters. She said at  that in her view the Club had a right to make an application for permission to appeal against the Publication Judgment to the Court of Appeal, because it was neither an appeal under section 67 nor section 68 of the Arbitration Act which would be precluded by the terms of respectively section 67(4) and section 68(4). The policy considerations of finality of arbitration did not appear relevant to the separate issue of publication of a judgment and the appeal would not be concerned with the substantive issue dealt with in the Merits Judgment. There was some support for this conclusion from the authorities relied upon by the Club.
- The judge granted a stay for seven days so that the Club could make an application for permission to appeal to the Court of Appeal.
The grounds of appeal
- The Club puts forward two grounds of appeal:
- i) First, the Judge erred by ordering the publication of the Judgments.
- ii) Second, in the alternative, the Judge erred by failing to stay publication of the Judgments pending the conclusion of the PL’s investigation.
- On 20 April 2021, Males LJ granted permission to appeal on both grounds on the assumption that the Court of Appeal had jurisdiction to do so, saying that whether the Court of Appeal had such jurisdiction was a point of general importance which it was appropriate for this Court to consider. He also ordered that the appeal should be heard in private, that the papers in the appeal should be confidential and not made available to anyone other than the parties and he continued the stay on publication granted by the judge until the conclusion of the appeal.
- In the circumstances, I will consider first the issue of jurisdiction. Before doing so, I should refer to the fact that, on the eve of the hearing of the appeal, Associated Newspapers Limited (publishers of the Mail on Sunday) made an application for one of their journalists, Mr Dan Matthews, to be present at the hearing and to be provided with copies of the judgments of Moulder J and the parties’ skeleton arguments, to enable them to understand and to scrutinise the process of the Court. Lord Pannick QC resisted this application on the basis that the hearing was in private and the subject-matter was confidential. However, we acceded to the application, upon Associated Newspapers Limited and Mr Mathews giving undertakings (which they were willing to give) not to publish or disclose the judgments or the skeleton arguments without further Order of the Court and on the basis that the hearing of the appeal remained private.
- The consequence of the judge’s refusal of permission to appeal against the Merits Judgment in her Order of 17 March 2021 was that this Court has no jurisdiction to entertain an appeal against the Merits Judgment. This is the effect of sections 67(4), 68(4) and 24(6) of the Arbitration Act, each of which provides: “The leave of the court is required for any appeal from a decision of the court under this section.” Lord Phillips MR, giving the leading judgment of the Court of Appeal in Athletic Union of Constantinople v National Basketball Association (No 2) EWCA Civ 830;  1 WLR 2863, held at  that “the court” in the sections means the Commercial Court (which was the court that made the decision in that case) saying:
“(4) Sections 67, 68 and 69 demonstrate a consistent legislative policy that no appeal shall be made against the decision of a court without the permission of that court. In this respect, there is no logical reason for distinguishing between the effects of sections 67(4) and 68(4) on the one hand, and the effect of section 69(8) on the other hand.
(5) In reserved judgments, this court has recently unanimously held that, on the true construction of section 69(8), a party who wishes to appeal from the decision of the High Court or the county court on appeal from an arbitration award requires the permission of the High Court or the county court, as the case may be, and that the Court of Appeal has no jurisdiction either to grant permission itself or to review a refusal of the High Court or county court to grant permission: (see Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd  1 QB 308). Much of the reasoning of Waller LJ, who gave the leading judgment in that case, can be applied to section 67(4).”
- Lord Pannick QC accepted that the jurisdiction of the Court of Appeal to hear an appeal from a decision under one of those sections was restricted to cases where the Court at first instance had granted permission to appeal, but submitted that the separate issue of an appeal against an Order for publication of the Merits Judgment was not within that restriction for three reasons.
- First, as a matter of language of the statutory provisions, taking section 67(4) as the example, what was being referred to was an appeal from a decision as to the substantive jurisdiction of the arbitration tribunal under section 67. An appeal against a decision to publish a decision under section 67 was not itself a decision under section 67. Second, this conclusion was supported by the policy reason for the restrictions in each of these sections, which was to limit further appeals because they would lead to delay in the resolution of a dispute decided by arbitration. This policy reason was explained cogently by May LJ in Amec Civil Engineering Ltd v Secretary of State for Transport EWCA Civ 291;  1 WLR 2339 at :
“Mr Robert Akenhead QC was appointed arbitrator. He is a specialist leading counsel with wide experience of construction contract matters. He rejected Amec’s contentions that he had no jurisdiction because the notice of arbitration was ineffective. He also rejected their contention as to the limited scope of the arbitration. Amec appealed against this decision under section 67 of the 1996 Act. On 11th October 2004, Jackson J, sitting in the Technology and Construction Court, dismissed Amec’s appeal in a persuasive judgment. He gave Amec leave to appeal to this court, his leave being a necessary precondition of such an appeal under section 67(4) of the 1996 Act. I am not convinced that he was right to do so. The policy of the 1996 Act does not encourage such further appeals which in general delay the resolution of disputes by the contractual machinery of arbitration. The judge and Mr Akenhead had reached the same conclusion for substantially the same reasons. Their combined experience and authority was, I think, sufficient to conclude the matter without an expensive second appeal.”
- Lord Pannick QC submitted that to recognise that this Court has jurisdiction in respect of the appeal against the Publication Judgment would not impede that policy objective. The appeal would not delay the ongoing arbitration process which would continue to take place in private. It was not suggested by the PL that the appeal against the Publication Judgment would impede the investigation.
- Third, Lord Pannick QC submitted that the conclusion that the Court did have jurisdiction to hear this appeal was supported by previous judicial decisions. He relied primarily on the analysis of section 18(1)(g) of the Senior Courts Act 1981 by the House of Lords in Inco Europe Ltd v First Choice Distribution 1 WLR 586. Section 18(1)(g) provides: “No appeal shall lie to the Court of Appeal: …(g) except as provided by Part I of the Arbitration Act 1996 [Part I includes sections 24 and 67 to 69], from any decision of the High Court under that Part.”
- In that case, the defendants applied to stay an action under section 9 of the Arbitration Act on the basis that the parties had agreed to refer the relevant dispute to arbitration. The judge at first instance held that the arbitration agreement was null and void and refused a stay. He also refused leave to appeal on the ground that, under section 18(1)(g) of the Senior Courts Act 1981, the Court of Appeal did not have jurisdiction to entertain an appeal against the grant or refusal of a stay in favour of arbitration. The Court of Appeal granted permission to appeal and allowed the appeal on the basis that the judge should have granted a stay. The House of Lords refused a further appeal, holding that the Court of Appeal had jurisdiction to hear the appeal. Lord Pannick QC referred in particular to what Lord Nicholls of Birkenhead said at 592A-C:
“I am left in no doubt that, for once, the draftsman slipped up. The sole object of paragraph 37(2) in Schedule 3 was to amend section 18(1)(g) by substituting a new paragraph (g) that would serve the same purpose regarding the Act of 1996 as the original paragraph (g) had served regarding the Act of 1979. The language used was not apt to achieve this result. Given that the intended object of paragraph 37(2) is so plain, the paragraph should be read in a manner which gives effect to the parliamentary intention. Thus the new section 18(1)(g), substituted by paragraph 37(2), should be read as confined to decisions of the High Court under sections of Part I which make provision regarding an appeal from such decisions. In other words, ‘from any decision of the High Court under that Part’ is to be read as meaning ‘from any decision of the High Court under a section in that Part which provides for an appeal from such decision’.”
- Lord Pannick QC also relied on the decision of the Court of Appeal in Virdee v Virdi EWCA Civ 41. In that case, this Court held that it had no jurisdiction in relation to the appointment of arbitrators by the Court under section 18 of the Arbitration Act (subsection (5) of which contains the same limitation on the right of appeal as the sections relied upon here) where the judge had refused permission to appeal. However, it held that it did have jurisdiction in respect of other orders the judge had made as to whether legal representation was allowed and as to costs between the parties, since the relief sought did not fall within any of the sections of the Arbitration Act.
- Lord Pannick QC recognised that Virdeewas of little if any precedential value, since only one party was present at the hearing and he was not legally represented. Brooke LJ said at :
“Given that we have not had the benefit of counsel’s arguments on both sides, although we have had access to the material to which I have referred, this case should not be regarded as binding precedent in the sense that, if the matter comes before the court again, the court should not have the opportunity of considering it and hearing full argument on it free from the shackles of precedent. In all the circumstances, however, we must, of course, deal with the point now on the material which is in front of us.”
- Lord Pannick QC also relied upon the decision of the Court of Appeal in Peel v Coln Park LLP EWCA Civ 1602, which was an application for permission to appeal against a refusal by the judge at first instance to extend the 28-day period for challenging an award under section 70(3) of the Arbitration Act. Again that case is of little precedential value since counsel for the respondents conceded that there was jurisdiction to grant permission to appeal, although Longmore LJ thought this must be right saying at :
“that must be right since section 80(5) of the 1996 Arbitration Act requires that rules of court relating to extending periods of time apply in relation to any time requirement, and so we have the slightly paradoxical situation that, whereas the refusal of the judge at first instance on a matter of substance under section 68 or section 69 cannot be reconsidered by this court, an application of a preliminary nature for extension of time is apparently a matter which can be reconsidered by this court.”
- Citation of those cases provoked a debate between counsel and the Court as to where the line was to be drawn between decisions which would be caught by the limitation on the right of appeal in the relevant section of the Arbitration Act and decisions which would not. Lord Justice Males posited the example of a case management decision about how a section 68 application should be dealt with. As I said at the time, that would seem to be an example of something which is part of the process of reaching a decision under section 68, so would be caught by the limitation on the right of appeal. The Master of the Rolls suggested to Lord Pannick QC that a consequential decision on a section 68 application, for example as to costs, would also be caught by the limitation.
- Lord Pannick QC made it clear that he was not inviting this Court to lay down any general principles applicable in every case, but only to determine that this Court had jurisdiction to hear the appeal from the Publication Judgment. I agree that it is not necessary for present purposes to determine the more difficult question whether case management decisions either side of the substantive decision under, say, section 67 or 68, for example as to how a hearing is to be conducted or as to costs, would be caught by the limitation in sub-section (4) of each section. Whilst such case management decisions may be said to be part of the process of reaching the substantive decision, the question whether the substantive decision should be published is a distinct question separate from the decision itself. In the present case, the judge’s decision that the Merits Judgment and the Publication Judgment should be published was an application of common law principles as set out in the decision of this Court in City of Moscow. It was not a decision of the Court under sections 24, 67 or 68 and was, therefore, not caught by the limitation on the right of appeal. In those circumstances, I am satisfied that this Court has jurisdiction to hear this appeal under section 16 of the Senior Courts Act 1981 and that the restriction in section 18(1)(g) of that Act is not applicable.
The parties’ submissions on the appeal
- In addition to the passages in the judgment of Mance LJ in City of Moscowto which the judge referred, Lord Pannick QC referred the Court to , - and . For present purposes it is only necessary to set out  and :
“32. The rule makers clearly deduced from the principles of the Arbitration Act 1996 that any court hearing should take place, so far as possible, without undermining the reasons of inter alia privacy and confidentiality for which parties choose to arbitrate in England. Their conclusion in this regard has not been challenged. It may be justified on the simple basis that arbitration represents a special case, in relation to which there has been very considerable development during recent years. An alternative and overlapping consideration is that parties may be deterred from arbitrating or at any rate from invoking the court’s supervisory role in relation to arbitration if their understanding regarding arbitral confidentiality and privacy is ignored. I would personally doubt whether it can be said without any positive evidence that the publication that has in the past frequently followed applications to set aside arbitration awards, e.g. for misconduct, has itself been likely to be detrimental to parties’ keenness or otherwise to agree to arbitrate in London. But I find it easier to accept that, having arbitrated unsuccessfully here, a party could well be deterred from making an arbitration claim in court if there was a risk that by doing so really confidential matters might be disclosed.
- The consideration that parties have elected to arbitrate confidentially and privately cannot dictate the position in respect of arbitration claims brought to court under CPR 62.10. CPR 62.10 therefore only represents a starting point. Such proceedings are no longer consensual. The possibility of pursuing them exists in the public interest. The courts, when called upon to exercise the supervisory role assigned to them under the Arbitration Act 1996, are acting as a branch of the state, not as a mere extension of the consensual arbitral process. Nevertheless, they are acting in the public interest to facilitate the fairness and well-being of a consensual method of dispute resolution, and both the Rule Committee and the courts can still take into account the parties’ expectations regarding privacy and confidentiality when agreeing to arbitrate.”
- Lord Pannick QC accepted that the judgment of Mance LJ demonstrates that, in each case, in considering whether a judgment should be published, it is a question of weighing confidentiality and any detriment to the parties from publication against the public interest in publication, particularly where the judgment raises matters of some general importance.
- He submitted that the circumstances in which an appellate court can interfere with an evaluative judgment by a lower court are accurately set out by Lord Carnwath JSC in R (AR) v Chief Constable of Greater Manchester police UKSC 47;  1 WLR 4079 at :
“In conclusion, the references cited above show clearly in my view that to limit intervention to a “significant error of principle” is too narrow an approach, at least if it is taken as implying that the appellate court has to point to a specific principle – whether of law, policy or practice – which has been infringed by the judgment of the court below. The decision may be wrong, not because of some specific error of principle in that narrow sense, but because of an identifiable flaw in the judge’s reasoning, such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion. However, it is equally clear that, for the decision to be “wrong” under CPR 52.11(3), it is not enough that the appellate court might have arrived at a different evaluation. As Elias LJ said (R (C) v Secretary of State for Work and Pensions  EWCA Civ 47;  PTSR 1344, para 34):
“… the appeal court does not second guess the first instance judge. It does not carry out the balancing task afresh as though it were rehearing the case but must adopt a traditional function of review, asking whether the decision of the judge below was wrong.””
- Lord Pannick QC submitted that there had been errors of principle by the judge in her evaluation. As she had indicated in refusing permission to appeal the Merits Judgment, she had applied the principles in Halliburtonand there was no novelty in her decision, so there was no question of the judgment requiring publication.
- In  of his Reasons for granting permission to appeal, Males LJ had said that it was arguable that the question dealt with in the Merits Judgment whether, at least until the Rules changed in February 2020, the system for appointing arbitrators in disputes involving the Premier League was structurally biased, was itself a matter of some public interest telling in favour of publication. Lord Pannick QC sought to counter this by submitting that the judge had decided the issue by applying the principles in Halliburtonand, in any event, this would only be of historical interest because the Rules had changed and appointment of arbitrators was now made by an independent chair. The Club’s complaint had been specific to its case.
- In relation to her determination that publication would not involve disclosure of significant confidential information, the judge had referred to the public statement by the PL as reported in the Times on 8 March 2019. For completeness, it was pointed out that there had been a recent article in the New York Times on 4 May 2021 about the dispute. This said, inter alia:
“City [the Club] has spent millions of dollars defending itself since the allegations first emerged. Its lawyers are fighting against the [PL]’s arbitration process, arguing that the club will not get a fair hearing, according to documents. The [PL] did not reply to a request for comment.”
Essentially the same story was reported in the Mail Online the same day.
- Lord Pannick QC submitted that, notwithstanding the publication of these three articles, publication of the Merits Judgment would disclose that there was a decision in the arbitration at an early stage, when the parties had a reasonable expectation of confidentiality being maintained. What was not publicly known was that the Club had argued that there was no power to arbitrate the particular dispute under the Rules and that there was apparent bias. All of that was confidential and publication would tell the world what was going on and why, in circumstances where the arbitration was not concluded. Lord Pannick accepted the point made by the judge at [13(ii)] of her judgment, summarised at  above, that the Merits Judgment does not contain any significant details of the substance of the disclosure dispute.
- However he submitted that the judge had not recognised that, contrary to her conclusions at  and , publication of the Merits Judgment will inevitably lead to extensive press comment and speculation in relation to a matter which had been confidential to date and which the parties were entitled to expect to remain confidential. The press would report whatever they could arising from the judgment and this would be prejudicial to the Club. It was contended that press comment and speculation could be prejudicial to the Club, for example in its dealings with commercial partners. The Club’s skeleton argument served on 6 May 2021 referred to it being in advanced negotiations regarding a potential deal, but Lord Pannick QC informed the Court on instructions that this was no longer the case. Such publicity and press speculation could also potentially disrupt the orderly conduct of the investigation by the PL.
- Lord Pannick QC submitted that the judge had erred in finding that publication would not involve disclosure of significant confidential information and in concluding that the Club would suffer no real detriment from publication. She had placed undue weight on the desirability of public scrutiny and therefore had erred in the performance of the relevant balancing exercise, so that it was open to this Court to interfere.
- If the Court were against the Club on the first ground of appeal, Lord Pannick QC pursued the second ground, which was that any publication should be stayed until the end of the disciplinary process, which would ensure that any wider public benefit from the publication of the Merits Judgment would accrue, but only at a time when it would not cause the Club and the PL harm in the context of the ongoing proceedings. Contrary to what Males LJ had said at  of his Reasons for granting permission to appeal, this alternative argument had been relied upon by the Club before the judge.
- The Club also relied upon the fact that its appeal is supported by the PL. The PL put in written submissions from Mr Adam Lewis QC and Mr Andrew Hunter QC, but they did not attend the hearing. They contended that the privacy of Section X arbitrations under the Rules was significant and in need of protection, although they recognised that this argument had been run unsuccessfully in the Commercial Court in Newcastle United Football Club Ltd v The Football Association Premier League  EWHC 450 (Comm). The PL’s argument was that the substantive judgment of HHJ Pelling QC rejecting that club’s bias application should not be published, because the arbitration was pending and was confidential and there was no countervailing public interest justifying publication of the judgment, which raised no new point of law or practice. That argument was rejected by HHJ Pelling QC who ordered publication.
- The PL’s support for the Club’s position was conditional, however, on the Club’s agreement that any order as to privacy should be subject to an exception, that the PL should be entitled to rely upon the Merits Judgment in other relevant proceedings between it and other member clubs and to disclose it to such other member clubs as a clear confirmation by the Commercial Court that the PL is entitled to bring specific performance proceedings against member clubs under Section X of the Rules. The Club had agreed to this condition both before the judge and before this Court.
- In my judgment, the judge made the correct evaluative assessment in ordering that the Merits Judgment and the Publication Judgment should be published, for a series of inter-related reasons.
- First, I agree with the judge that publication will not lead to disclosure of significant confidential information. What will be disclosed is the existence of the dispute and the arbitration in circumstances where it is already public knowledge that the underlying investigation by the PL is taking place and, as the judge said, the reasonable reader of the Times article would assume that the investigation would involve the production by the Club of documents and information. Furthermore, since the judge’s judgments, the existence of a dispute and of the arbitration is now in the public domain, as a consequence of the articles in the New York Times and the Mail Online. Specifically it is known that there is an arbitration in progress and that the Club is arguing that it cannot have a fair hearing (which would seem to be a non-lawyer’s interpretation of the allegation of apparent bias). Given what is now in the public domain, it is unreal to suggest that what will be disclosed by the publication of the Merits Judgment, namely the challenge to the jurisdiction of the arbitrators and the unsuccessful allegation of apparent bias, is in any sense significant confidential information. What will not be disclosed by the publication is any details of the substance of the underlying disclosure dispute.
- Second, I was not impressed with Lord Pannick QC’s argument that publication was not in the public interest because the Club’s complaint was specific to the Club’s case and, in any event, the judge had simply applied the principles recently confirmed by the Supreme Court in Halliburton. I consider that there is a legitimate public interest in how disputes between the PL and member clubs are resolved and, in particular, in the allegation of structural bias made by the Club which appears to have led to a change in the Rules. As HHJ Pelling QC said at  of his judgment in the Newcastle United case, there is a public interest in the publication of a judgment determining an application under section 24 of the Arbitration Act (in other words a judgment dealing with an allegation of apparent bias), because there is a public interest in maintaining appropriate standards of fairness in the conduct of arbitrations. This is so even if the judges determining such applications are applying the principles confirmed by Halliburtonrather than making new law. I also consider that there is a public interest in there being some explanation for the delay in the present case, where the investigation was made public as long ago as March 2019 but has hardly advanced since.
- Third, the fact that the PL supports the Club’s appeal so that both parties to the arbitration are opposed to publication is of some weight, but should lead to the Court being careful not simply to accept the parties’ wishes without scrutiny. As Sir Christopher Staughton said in Ex parte P (1998) (unreported) (as cited with approval by Lord Woolf MR giving the judgment of this Court in R v Legal Aid Board ex parte Kaim Todner  QB 966 at 977, in turn cited by Mance LJ at  of City of Moscow): “When both sides agreed that information should be kept from the public, that was when the court had to be most vigilant”.
- Fourth, in so far as the Merits Judgment confirms the entitlement of the PL to claim specific performance against member clubs, it is of public interest and significance. This point is confirmed by the condition which the PL has imposed on its support of the appeal, that it should be free to rely on and disclose the Merits Judgment in other arbitration proceedings against other member clubs. This demonstrates that whatever interest the parties have in confidentiality is far outweighed by the public interest in the publication of an important judgment on the scope of Section X of the Rules. This point about the importance of the judgment is put clearly in the PL’s own skeleton argument for this appeal at :
“It is correct that the Merits Judgment turned on the application of the normal rules of construction [of] a contract and the application of the undisputed bias test in Halliburton to the uncontested facts. However the specific and clear confirmation in it by the Commercial Court that the PL is entitled to bring specific performance proceedings against a member club under Section X of [the PL Rules] for enforcement of its contractual right to documents (and by parity of reasoning for enforcement of other contractual rights in the PL Rules), is of great significance in the future for the PL, for all member clubs and for practitioners. The PL was concerned before Moulder J, and remains concerned, that absent publication, this important Commercial Court guidance would not be available to those whom it might affect.”
- Whilst the desire of the PL to have the best of both worlds is commercially understandable, it is difficult to envisage a more eloquent demonstration as to why publication of the Merits Judgment is in the public interest.
- Fifth, I consider that the judge was right to view the Club’s case that publication would cause it prejudice or detriment with considerable scepticism. Given what is already in the public domain, disclosure of the existence of the dispute as to production of documents and information could hardly give rise to any prejudice or detriment to the Club. The suggestion that press interest and speculation might disrupt the investigation or the arbitration, where both are being conducted by experienced professionals is entirely fanciful. Likewise the suggestion that press comment and speculation following publication might damage the Club’s relations with commercial partners was unconvincing. As Lord Justice Males said during the course of argument, any potential commercial partner with whom the Club might enter a contract would be bound to conduct due diligence, which would reveal the existence of the investigation and the dispute.
- In all the circumstances, I consider that the judge was entirely correct to order publication of the Merits Judgment so that the first ground of appeal fails. Likewise, given that the public interest in publication outweighed any confidentiality, there was no good reason for deferring publication until after the conclusion of the disciplinary process so that the second ground of appeal also fails. This appeal must be dismissed.
Lord Justice Males:
- I agree that this appeal must be dismissed for the reasons given by the Chancellor. I add a few comments in view of the interest and importance of this case in ensuring the correct balance between the confidentiality of arbitration proceedings and the principle of open justice for court proceedings.
- As explained in City of Moscow, when considering whether a judgment on an arbitration claim should be published, with or without anonymisation, the court must weigh the factors militating in favour of publicity against the desirability of preserving the confidentiality of the original arbitration and its subject matter. In general, the imperative of open justice, involving as it does the possibility of public scrutiny as a means by which confidence in the courts can be maintained and the administration of justice can be made transparent, will require publication where this can be done without disclosing significant confidential information.
- In the present case Moulder J weighed the various considerations appropriately. Her conclusion that her judgment should be published was one which she was entitled to reach. It was not, in my view, a marginal decision. On the contrary, bearing in mind the careful way in which the judge expressed herself in the Merits Judgment in order to avoid revealing information about the underlying dispute, the balance here was clearly in favour of publication.
- That would be so even without the condition imposed by the Premier League that it should be free to rely on and disclose the Merits Judgment in other arbitration proceedings (see  above), a condition which the judge did not need to mention in the Publication Judgment (and of which I was not aware when granting permission to appeal). But in my judgment the imposition of that condition is fatal to this appeal. The compromise negotiated between the Club and the Premier League whereby the judgment would not be published, but would be available to the Premier League in the event of disputes with other clubs, is unacceptable. If the judgment is to be available as a potentially important precedent, it must be available to all.
- More generally, it seems to me that public scrutiny of the way in which the court exercises its jurisdiction to set aside or remit awards for substantial irregularity under section 68 of the 1996 Act is itself in the public interest. In City of MoscowMance LJ addressed a concern that publication of judgments would upset the confidence of the business community in English arbitration. He was sceptical about the extent to which, if at all, this would be so. I share his scepticism, for two reasons. First, the business community will see that, just as in this case, Commercial Court judges can be trusted to ensure that genuinely confidential information is not published. Second, publication of such judgments will confirm the pro-arbitration stance consistently taken by the English courts and thus will enhance the confidence of the business community in English arbitration. It will demonstrate that the section 68 gateway is a very narrow one, not only in theory but in practice, and that it is only in cases of real injustice that arbitral awards can be successfully challenged in the English courts.
- Finally, the Club has been anxious to emphasise before us that “the arbitral proceedings relate to an ongoing and confidential investigatory and disciplinary process which is still in its early stages”, and that it may be that no charges will ever be brought against it. While that may be true, it seems to me that this is, if anything, a factor which tells in favour of publication. This is an investigation which commenced in December 2018. It is surprising, and a matter of legitimate public concern, that so little progress has been made after two and a half years — during which, it may be noted, the Club has twice been crowned as Premier League champions.
The Master of the Rolls:
- I agree with both judgments.
|TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd  FCAFC 83|
|Court:||FEDERAL COURT OF AUSTRALIA|
|Case No:||VID 1042 of 2012
VID 1043 of 2012
VID 1044 of 2012
|Appeal from:||Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2)  FCA 1214|
|Parties||TCL AIR CONDITIONER (ZHONGSHAN) CO LTD
CASTEL ELECTRONICS PTY LTD
|JUDGE:||ALLSOP CJ, MIDDLETON J & FOSTER J|
|DATE OF HEARING:||26 November 2013|
|DATE OF JUDGMENT:||16 July 2014|
|CASE MAY BE CITED AS:||TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd  FCAFC 83|
|MEDIUM NEUTRAL CITATION:|| FCAFC 83|
|Catchwords:||ARBITRATION – international commercial arbitration – where appellant sought the setting-aside and non-enforcement of an arbitral award under Arts 34 and 36 of the UNCITRAL Model Law on the ground that there had been a breach of the rules of natural justice and hence that the award was contrary to the public policy of Australia under s 19 of the International Arbitration Act 1974 (Cth) – where the alleged breach of natural justice was a supposed absence of probative evidence for the arbitrators’ factual findings – consideration of whether and when such an absence would constitute a breach of natural justice in an international arbitral context – interpretation of “public policy” and “natural justice” in this context – discussion of unfairness as the basic prerequisite for the setting-aside or non-enforcement of international arbitral awards – discussion of the operation of the discretion in Arts 34 and 36.
STATUTORY INTERPRETATION – where UNCITRAL Model Law was the product of international negotiations under the auspices of the United Nations – whether legislation implementing the Model Law in Australia should be construed in light of reasoned foreign decisions dealing with the Model Law – discussion of the importance of uniformity of approach.
|Judgment:||THE COURT ORDERS THAT:
1. The appeal be dismissed with costs.
2. Monies paid into Court to provide security for costs, pursuant to the orders of Tracey J of 26 February 2013, be released to the respondent.
|Cases cited:||AJU v AJT  SGCA 41;  4 SLR 739
Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd  2 NZLR 614
Applicant M164/2002 v Minister for Immigration and Multicultural and Indigenous Affairs  FCAFC 16
Armah v Government of Ghana  AC 192
Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 71 ALR 93
Attorney General of Canada v S D Myers Inc  3 FCR 368
Attorney-General v Ryan  AC 718
Australian Broadcasting Tribunal v Bond  HCA 33; 170 CLR 321
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Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139
Biggin & Co Ltd v Permanite Ltd  1 KB 422
Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969
Boardwalk Regency Corp v Maalouf (1992) 6 OR (3d) 737
Bushell v Secretary of State for the Environment  AC 75
Callaghan v Williams C Lynch Pty Ltd  NSWR 871
Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd  FCA 21; 287 ALR 297
Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2)  FCA 1214
Collins v Minister for Immigration and Ethnic Affairs (1981) 58 FLR 407
Comandate Marine Corp v Pan Australia Shipping Pty Ltd  FCAFC 192: 157 FCR 45
Corvetina Technology Ltd v Clough Engineering Ltd  NSWSC 700; 183 FLR 317
CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK  SGCA 33;  4 SLR 305
Cullen v Welsbach Light Co  HCA 3; 4 CLR 990
Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd  1 AC 295
Downer-Hill Joint Venture v Government of Fiji  1 NZLR 554
Dranichnikov v Minister for Immigration and Multicultural Affairs  HCA 26; 197 ALR 389
Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations  FCAFC 88; 195 FCR 318
Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd  FCA 414
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167
F Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry  AC 295
Ferguson v Cole  FCA 1411; 121 FCR 402
Fox v PG Wellfair Ltd  2 Lloyd’s Rep 514
FTZK v Minister for Immigration and Border Protection  HCA 26
Gallaway Cook Allan v Carr  1 NZLR 826
Gas & Fuel Corporation of Victoria v Wood Hall Ltd & Anor  VR 365
Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad  HCA 65; 196 CLR 161
Green v The Queen  HCA 49; 244 CLR 462
Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd  FCAFC 109; 304 ALR 468
Haider v JP Morgan Holdings Australia Ltd  NSWCA 158
Hampton Court Ltd v Crooks  HCA 28; 97 CLR 367
Hebei Import & Export Corp v Polytek Engineering Co Ltd  2 HKC 205
Interbulk Ltd v Aiden Shipping Co Ltd (The Vimeira)  2 Lloyd’s Rep 66
Jarratt v Commissioner for Police for NSW  HCA 50; 224 CLR 44
JLW (Vic) Pty Ltd v Tsiloglou  1 VR 237
John Holland Pty Ltd (fka John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan)  2 SLR 262
Kempinski Hotels SA v PT Prima International Development  SGHC 171;  4 SLR 633
Kioa v West  HCA 81; 159 CLR 55
Kostas v HIA Insurance Services Pty Ltd  HCA 32; 241 CLR 390
LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd  SGCA 57;  1 SLR 125
Mahon v Air New Zealand  AC 808
McPhee v S Bennett Ltd (1934) 52 WN (NSW) 8
Mediterranean & Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd  2 All ER 186
Methanex Motunui Ltd v Spellman  1 NZLR 95
MGM Productions Group Inc v Aeroflot Russian Airlines 91 Fed Appx 716 (2d Cir 2004)
Minister for Immigration and Citizenship v Li  HCA 18; 249 CLR 332
Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666
Minister for Immigration and Multicultural Affairs v Rajamanikkam  HCA 32; 210 CLR 222
Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation  HCA 41; 113 CLR 475
Motrix Supplies Pty Ltd v Bonds and Kirby (Victoria Avenue) Pty Ltd (Sup Ct of NSW Commercial Division, 12 September 1990, Giles J, BC9002025)
Pacific Recreation Pte Ltd v SY Technology Inc  SGCA 1;  2 SLR(R) 491
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Parsons Whittemore Overseas Co Inc v Société Générale de l’Industrie du Papier (RAKTA) 508 F 2d 969 (2d Cir 1974)
Povey v Qantas Airways Ltd  HCA 33; 223 CLR 189
Premium Nafta Products Ltd v Fili Shipping Co Ltd  UKHL 40
PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA  SGCA 41;  1 SLR 597
PT First Media TBK v Astro Nusantara International BV  SGCA 57
Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd  3 NZLR 338n
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R v Corporation of the Town of Glenelg; Ex parte Pier House Pty Ltd  SASR 246
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|Texts and articles:||M Aronson and M Groves, Judicial Review of Administrative Action (5th ed)
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|Representation:||Counsel for the Appellant: PB Murdoch QC with AP Trichardt
Solicitor for the Appellant: Norton Rose Australia
Counsel for the Respondent: JWS Peters SC with D Bailey
Solicitor for the Respondent: Hunt & Hunt
REASONS FOR JUDGMENT
- On 26 November 2013, after the oral argument on the appeal, the Court made orders dismissing each of the appeals with costs. These are the reasons for making those orders.
- The appellant (“TCL”), a company organised under the laws of the People’s Republic of China, and the respondent (“Castel”), an Australian company, were parties to an agreement for the distribution in Australia of air conditioning units manufactured by TCL in China. Castel was the exclusive Australian distributor. The agreement provided for arbitration in the event of any dispute that could not be resolved by mutual agreement. The arbitration agreement was one to which the International Arbitration Act 1974 (Cth) (“the IAA”) applied.
- Disagreements arose between the parties. The dispute between the parties was submitted to arbitration for resolution. On 23 December 2010, after a ten-day hearing, the arbitral panel (Dr Gavan Griffith AO, the Hon Alan Goldberg AO and Mr Peter Riordan SC) delivered an award in Castel’s favour in the sum of $2,874,870. On 27 January 2011, the arbitrators handed down a further award of $732,500 in costs.
- The foundation of the award was the selling by TCL in Australia between 2004 and 2008, in breach of its promise to Castel of exclusivity of rights of distribution of TCL products, of air conditioning units manufactured by TCL, but not bearing the TCL brand. These units were referred to as Other Equipment Manufacture products (“OEM products”). The quantum of the award was reached by making an assessment of the financial impact of the importations of OEM products upon Castel’s sales.
- TCL sought to set aside the award under Art 34 of the UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) (“the Model Law”), which has the force of law in Australia by s 16 of the IAA. Castel sought to enforce the award under Art 35 of the Model Law. TCL resisted enforcement under Art 36 of the Model Law.
- The grounds for TCL’s two claims (the setting aside of the award under Art 34 and the resistance of enforcement under Art 36) were identical: the asserted failure by the arbitrators to accord TCL procedural fairness such that there had been a breach of the rules of natural justice in connection with the making of the award, and so, it was asserted, the award was in conflict with, or contrary to, the public policy of Australia: see Arts 34(2)(b)(ii) and 36(1)(b)(ii) and ss 16 and 19 of the IAA.
- The asserted breaches of the rules of natural justice arose from the making by the arbitrators of three central findings of fact. The three findings, referred to by the primary judge as the “14% Starting Point Finding”, the “Uplift Finding” and the “Lost Sales Finding” (each of which is explained later) were said to have been made in the absence of probative evidence, and were findings upon which TCL was said to have been denied an opportunity to present evidence and argument.
- In advancing its argument before the primary judge (and its appeal) TCL submitted that the proper approach was to examine the facts of the case afresh and revisit in full the questions which were before the arbitrators in order to evaluate whether or not probative material supported the factual conclusion.
- TCL had also argued that the Federal Court had no jurisdiction to entertain the applications before it. In an earlier judgment (Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd FCA 21; 287 ALR 297) the primary judge rejected this argument. TCL then applied in the original jurisdiction of the High Court to prohibit the Federal Court from dealing with the matter on grounds involving lack of jurisdiction and constitutional invalidity of the conferral of jurisdiction on the Court. That application was dismissed: TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia  HCA 5; 295 ALR 596. The resolution of this question led to the abandonment of the grounds of appeal from the primary judge’s earlier decision upon jurisdiction.
- In a full and careful judgment published on 2 November 2012 (Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2)  FCA 1214), the primary judge rejected TCL’s contention as to how the application should be approached; nevertheless, he examined the structure and foundations of the award, the evidence before the arbitrators and the factual findings therein; and rejected TCL’s resistance to enforcement of the award. On 19 November 2012, the primary judge published a judgment on costs and made orders enforcing the award and dismissing TCL’s application to set it aside. His Honour was correct to make the orders he did.
- The appeal raised matters of some importance for the operation of the IAA in Australia, and in particular the content of the “rules of natural justice” for the purpose of s 19 of the IAA (and necessarily also for s 8(7A)), and the method of approach to applications of the kind made here by TCL.
The approach of the primary judge
The discussion of the statute and legal principles by the primary judge
- After introducing the matter and setting out the legislative framework, the primary judge discussed at J- the principles relating to public policy in the IAA, dividing this discussion among the following subjects: whether “public policy” relates to procedural as well as substantive issues: J; whether “public policy” has a similar meaning in the IAA in relation to setting aside an award and in relation to enforcement: J-; the nature of the seriousness of the breach of the rules of natural justice for an award to be in conflict with public policy: J-; the nature of any discretion to set aside or enforce the award, involving questions of the use of decisions of courts in Convention countries and the meaning of “public policy” in the IAA and the Model Law: J-; the extent of the review required of the Court when an award is challenged for breach of the rules of natural justice: J-; and whether there was a distinction between the requirement for natural justice in connection with the making of the award as against the reasons underpinning it: J-.
- The primary judge’s essential conclusions in respect of these issues were:
(a) “Public policy” includes procedural questions as well as substantive law: J.
(b) The notion of “public policy” in Arts 34 and 36 is the same: J-.
(c) The drafting of s 19(b) of the IAA and its plain words required a conclusion that any breach of the rules of natural justice, even minor and unimportant, was sufficient to lead to the conclusion that the award was in conflict with, or contrary to, Australian public policy. His Honour saw some tension in this conclusion with authorities of Convention states’ courts that public policy refers to fundamental notions of justice and fairness. Nevertheless, the primary judge saw the words of the IAA as requiring this conclusion. He saw the place of any offence to those fundamental notions as within the operation of the discretion to set aside or enforce: J-.
(d) The asserted breach of the rules of natural justice must be of a sufficiently serious character to offend fundamental notions of fairness and justice before the relevant discretion under either Art 34 or Art 36 would be exercised: J.
(e) The review by the Court did not involve examining the case afresh and revisiting in full all questions before the arbitrator. Rather, the extent of the enquiry depended on the circumstances in question. In the undertaking of the review, the primary judge chose to conduct a close examination of the facts, and expressed some concern that he may have undertaken too deep and detailed an enquiry: J-.
(f) The primary judge rejected the submission of Castel that s 19(b) (and thus s 8(7A)(b)) was confined to a breach of the rules in connection with the (actual) making of the award, in contra-distinction to the reasons: J.
- Subject to the reasons that follow, we generally agree with his Honour’s conclusions, but we would not express the matter as the primary judge did in relation to [13(c)] and [13(d)] above. In particular, care needs to be taken in referring to so-called minor or unimportant breaches of the rules of natural justice. (See also Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd FCA 414 (Pagone J).)
The dealing with the substantive applications by the primary judge
- It is convenient to outline the approach of the arbitrators through a discussion of how the primary judge dealt with the award. Reference will continue to be made to the primary judge’s reasons in the manner above; reasons of the arbitrators will be prefaced by “A”, eg “A”.
- The primary judge first described the arbitration. Relevant to his review and to the argument of the appeal were the following considerations.
- Both sides were represented at all times by competent and experienced solicitors, junior counsel and senior counsel. During the ten-day hearing, full cross-examination of witnesses, including expert witnesses, took place.
- There was no complaint before the primary judge about the arbitrators’ conclusion that the sales of all OEM products from 1 January 2004 to 31 December 2008 were made in breach of the relevant agreement and that Castel was entitled to damages. The complaints related to the factual findings central to the assessment of Castel’s loss and therefore the damages to which it was entitled.
- There was no complaint before the primary judge about the arbitrators’ general approach to the assessment of Castel’s loss: (a) the volume of lost sales of TCL-branded products by Castel had TCL not breached the agreement by selling OEM products in Australia; multiplied by (b) the prices at which those additional sales would have been made; less (c) any additional costs that would have been associated with the higher volume of sales. The complaints concerned the calculation of the first of those elements: TCL’s lost sales.
- In support of the claim of lost sales, Castel called three witnesses:
(a) an expert, Mr Peter Acton (a financial and management consultant);
(b) its managing director, Mr Michael Kwong; and
(c) its Queensland manager, Mr Trevor Francis.
- TCL called three witnesses relevant to the issue of lost sales:
(a) an expert economist, Mr Phillip Williams;
(b) its General Manager, Overseas Business Division, Mr Shi Weiyi; and
(c) its Sales Director, Mr Frank Wang.
- Important to the question of lost sales was the assessment of the extent to which OEM products were competitive with, or substitutable for, TCL-branded products. Mr Williams, who was not directly familiar with the business of selling air conditioners or with the business of TCL and Castel, gave evidence about this question of substitutability, and horizontal and vertical differentiation of products: J.
- Mr Acton claimed no expertise in substitutability. Relying upon what was said by Messrs Kwong and Francis, he concluded that every OEM product sold represented a loss of a sale to TCL: a 100% substitution ratio. The arbitrators, having reviewed his evidence, placed no weight upon it as expert evidence, but considered that it remained of some assistance as to framework and methodology.
- It was uncontentious that the relevant market for air conditioners was at 5 levels, the TCL-branded and OEM products occupying space at the bottom of the market. A central part of the controversy was how close to the bottom were the two classes of product and how close were they to each other, and thus how closely mutually substitutable they were.
- Mr Williams, who was cross-examined at length, accepted that there was little data to quantify the degree of substitutability, but expressed the view that the two types of products were unlikely to be competing with each other. This view was based significantly on an assumption that TCL-branded products were in level 4 and OEM products in level 5, and, importantly, the assumed behaviour of a rational profit-making enterprise in the position of TCL not to position lower profit versions of product (OEM) to be close substitutes for higher profit versions of product (TCL-branded). He saw after-sales service of level 4 Castel TCL-branded products (no after-sales service being offered by TCL or Castel for OEM products) as important for the differentiation between the products.
- Against this, the arbitrators (at A-, recited by the primary judge at J) referred to the evidence of Messrs Kwong and Francis of their inspection of OEM products, their often exact equivalence, examples of actual loss of business accounts, and advertising to the effect that OEM products were manufactured by TCL.
- The arbitrators addressed substitutability and product differentiation at A- (relevantly set out by the primary judge at J). It is to be recalled that while Mr Williams was a well-qualified, indeed eminent, market economist, one of the arbitrators was a former President of the Competition Tribunal.
- At A, the arbitrators referred to Castel’s claim and Mr Francis’ evidence. At A, the arbitrators referred to TCL’s key evidence. At A, the arbitrators referred to evidence of Professor Williams on this evidence. At A-, the arbitrators referred to further evidence of Professor Williams on substitutability and differentiation. The arbitrators then made the following findings on this evidence at A-:
212 Having considered all of the evidence the Tribunal does not propose, and nor was it invited, to consider model by model whether there was direct substitutability between TCL-branded products and OEM products. It accepts the evidence of Mr Francis as to his observations and the perceptions of customers as conveyed to him. It accepts that for sections of Castel’s actual and potential customer base the OEM products were regarded as just as good and led those customers to choose the OEM products instead of the TCL-branded products.
213 At the lower end of the market where the TCL brand and the OEM brands were competing it appears that functionality rather than form was the important issue. The TCL-branded products and the OEM branded products served in the similar part of the market and offered the same types of units.
214 The Tribunal cannot find as a fact that every OEM unit sold was directly substitutable for a designated TCL-branded unit. However for the purposes of estimating the loss of sales to Castel brought about by the presence of TCL OEM products we proceed on the basis that the OEM products were sufficiently similar to be a direct competitor of, and replacement for, a line of TCL-branded products, at least insofar as they were perceived in that way by the customer base. It is important to note that Castel did not sell directly to end-users but rather to retailers who bought in bulk and who were well informed about the market and about the available brands.
- The arbitrators then turned to Mr Williams’ expressed view that sales of OEM products were drawn equally from sales of all other level 4 and 5 products, using the relevant market share of each: see J-. The arbitrators then analysed the basis for Mr Williams’ view that Castel could have expected to pick up a maximum of 7.4% of the OEM sales as extra sales of TCL-branded products: see J-.
- The complaints of TCL focus upon the method and findings of the arbitrators in coming to the view that Castel’s lost sales were not 7.4% of the OEM sales, but 22.5%.
The “no evidence rule”
- At J-, the primary judge set out the so-called “no evidence rule” as a part of the rules of natural justice by reference to R v Deputy Industrial Injuries Commissioner, Ex parte Moore  1 QB 456 (“Moore”) at 487-488 (where Diplock LJ expressed the rules of natural justice as encompassing first the bias rule; secondly, that the decision must be based on evidence; and thirdly, that the contentions should be fairly listened to; the question of “evidence” being expressed by his Lordship as the requirement, not for the application of the rules of evidence, but for “material which tends logically to show the existence or non-existence” of relevant facts); Mahon v Air New Zealand  AC 808 at 820-821 (where Lord Diplock, writing for the Judicial Committee, applied Moore and restated the principle therefrom); Downer-Hill Joint Venture v Government of Fiji  1 NZLR 554 at 570  (where Wild and Durie JJ, sitting in the High Court, applied Mahonin the context of natural justice in the part of the New Zealand legislation equivalent to ss 19(b) and 8(7A)(b) of the IAA); Collins v Minister for Immigration and Ethnic Affairs (1981) 58 FLR 407 at 411 (where Fox, Deane and Morling JJ were dealing with whether there was an error of law for the purposes of the Administrative Appeals Tribunal Act 1975 (Cth), s 44); Telstra Corporation Ltd v Australian Competition and Consumer Commission  FCA 757; 179 FCR 437 at 503-504  (where Lindgren J was dealing with whether there was an error of law for the purposes of the common law and the Administrative Decisions (Judicial Review) Act 1977 (Cth), s 5(1)(f)); and Haider v JP Morgan Holdings Australia Ltd  NSWCA 158 at  (where Basten JA was dealing with a question of law as the basis for a review of a decision under workers compensation legislation).
- We will say something about this categorisation in due course. It is sufficient to note at this point that Castel did not argue, either before the primary judge or on appeal, that if the arbitrators found relevant facts without the support of probative material, that was not, nor could have been, a breach of the rules of natural justice.
The application of the principle to the three impugned findings
The 14% Starting Point Finding
- At J-, the primary judge considered the attack on the arbitrators’ use of 14% as a starting point for their assessment of Castel’s lost sales. Having rejected Mr Acton’s 100% figure, they commenced with an analysis of Mr Williams’ 7.4%.
- The crucial paragraphs in the award concerning the finding of 22.5% (the 14% Starting Point Finding and the Uplift Finding) were A-. The reasoning of the arbitrators for the 14% Starting Point Finding was contained at A-, as follows:
231 What the evidence does establish is that there would have been some lost sales and brand damage from OEM sales through competing retailers, but that while some factors would suggest a significant loss of sales, others would indicate only a minimal effect.
232 Factors which would suggest a minimal effect are:
(a) the TCL brand and the OEM brands were sold in different retailers and in different stores;
(b) if a competing store to one selling TCL products had not sold OEM products it would have stocked TCL products;
(c) TCL was not such an established brand at this lower level of the market that it was at all likely that another retailer would have stocked the TCL brand had it not an OEM brand available;
(d) there was no real brand loyalty to TCL at the end-user level, and accordingly a potential TCL customer in a retail outlet was likely to have bought a non-TCL brand if it was available in one retailer and not have instead sought out the TCL brand stocked by TCL’s retailers; and;
(e) there was a high degree of substitutability between the TCL brand and OEM brands on one hand and competing non-TCL and OEM brands on the other, meaning that those who were potential TCL-branded products buyers had a wide selection of Level 4 and Level 5 models to choose from.
233 As against those facts, there is some evidence which would suggest the impact, though not approaching the 1:1 approach of Mr Acton, was much higher than the 7.4% approach of Mr Williams:
(a) Castel sold not directly to end users but to retailers, and accordingly it is the impact of OEM products on retailers rather than the impact on those retailers’ customers which must be considered.
(b) Mr Francis gave evidence of a number of occasions on which he was told by former Castel customers that they would be purchasing OEM products which were TCL made, rather than TCL-branded products or that they were observing their own customers making the switch. The Tribunal accepts this evidence to the extent that some purchasers of TCL-manufactured OEM products were making those purchases because they were TCL made, so that in their absence a higher percentage of buyers might have bought the TCL-branded products.
(c) Mr Francis also gave evidence, which we accept, of anger from some Castel customers that they were being under cut by other sellers who had TCL-manufactured OEM units for sale at lower prices than the TCL-branded goods, and that Castel had lost some sales where it could not meet the lower prices.
(d) Mr Kwong gave evidence that Castel’s dealership network was being directly targeted by those for whom TCL had manufactured OEM products, such that the impact of TCL-manufactured OEMs fell disproportionately on Castel and its TCL-branded products.
234 None of those factors are sufficiently reflected in Mr William’s evidence, which was that in the absence of the TCL OEM products Castel could have expected to gain 7.4% of the market share which those TCL OEM products had. He gave this as his best estimate on the basis that those who did not buy a TCL OEM would have bought another brand from Level 4 or level 5. In cross examination he agreed that if TCL manufactured OEM products were only competing with level 5 brands then Castel’s share would be doubled to around 14%. Mr Kwong’s evidence was that the TCL brand was at the bottom of the Level 4 market and that the TCL-made OEM products were in Level 5. We consider the 14% a better starting point for those reasons.
- The primary judge (at J) said it was clear that TCL could not establish a no evidence ground on this body of evidence. The primary judge then (at J-) dealt with TCL’s arguments as to the asserted misunderstanding of Mr Williams’ evidence, the asserted incorrect interpretation of facts and wrong reasoning, and the incorrect reliance on Mr Francis’ evidence.
The Uplift Finding
- The reasoning of the arbitrators for the Uplift Finding is to be found in A-, as follows:
235 The Tribunal also notes that:
(a) Mr Williams made his assessment on the basis that all other manufacturers in the relevant level would share equally in the redistributed share of the TCL OEM products. He agreed this might not be how things worked. We have noted and accepted the evidence of Mr Francis that at least in some instances large purchasers of TCL branded products decided to switch to what they knew to be a TCL-made OEM product. It is appropriate to allow an increase on Mr Williams’s calculations on the basis that the presence in the market of OEM products that were known to be TCL-made had a disproportionate effect on Castel as against sellers of other brands.
(b) Mr Williams based his calculations on data which represented just over 50% of the air conditioner market and which for the most part did not refer to TCL as a brand by name. He made assumptions that TCL is contained in the “Tradebrands” category but could not get an assurance of that from GfK. This affects the reliability of his calculations.
(c) Mr Williams also assumed that the 50% sample in the GfK data is representative of the overall sample as he had no means to do otherwise.
(d) Mr Williams agreed the GfK data was inconsistent with other evidence like the BIS Shrapnel report which would have suggested different rankings for air conditioners than those contained in the GfK data.
(e) The GfK data on which Mr Williams relied was for major retailers only and for that reason may fail to include some OEM brands which were sold through smaller channels.
(f) Mr Williams agreed that there could be additional TCL OEMs which he had not extracted from the Tradebrands category and which were not being redistributed on his formula.
236 All of these points affect the accuracy of the material on which Williams relied and therefore the reliability of his conclusions. Each of them warrants, in the Tribunal’s view, an uplift from the figure of 14% that he agreed was the base level if OEM products were largely competing with Level 5 products.
237 On the entirety of the evidence, including the finding that the matter of no competing OEM sales was seen by Castel at of such commercial importance in its GDA and the Variation Agreement with TCL as to mandate a no-competition without consent clause, the Tribunal concludes that the least proportion of the sales assessed to be lost by Castel attributable to the OEM sales made in to the Australian marketplace is 22.5% of total TCL OEM sales.
- At J-, the primary judge examined the evidence of Mr Williams and at J expressed the view that the deficiencies in the information available to Mr Williams compromised the validity of his opinion in a number of respects, set out at J[129(a)-(d)]. The primary judge then (at J) analysed why it was reasonable for the arbitrators to uplift the starting point, before identifying (at J) further evidence of Mr Kwong and Mr Francis which supported the uplift. The primary judge was, by that process of examining the evidence, satisfied that there was rationally probative evidence supporting the Uplift Finding.
The Lost Sales Finding
- The conclusion of the arbitrators as to the Lost Sales Finding is in A, set out above.
- At J-, the primary judge dealt with this overall assessment by the arbitrators. Critical to the argument of TCL, which was rejected by the primary judge, was the proposition that assessment of loss necessarily required expert evidence and that with the rejection of Mr Acton’s evidence, only Mr Williams’ evidence remained and the arbitrators were not at liberty to substitute their own assessment of Castel’s lost sales. This was rejected by the primary judge who found that in circumstances where it was common ground before the arbitrators that the calculation of Castel’s lost sales was not capable of precise calculation, and where it was clear that some damage had been suffered, the approach of the arbitrators to make a best estimate in a practical way, having regard to all the evidence (A), was correct and supported by authority, referring to Biggin & Co Ltd v Permanite Ltd  1 KB 422 at 438 (Devlin J); Callaghan v Williams C Lynch Pty Ltd  NSWR 871 at 877 (Full Court: Evatt CJ, Herron and Sugerman JJ); Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 183 (Sheppard, Morling and Wilcox JJ); JLW (Vic) Pty Ltd v Tsiloglou  1 VR 237 at 241-246 (Brooking J); and noting Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 319 (Pincus J); Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 71 ALR 93 at 103-104 (Pincus J); and Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23 at 37 (Gibbs J) and 38 (Aickin J), but cf 26 (Barwick CJ).
- At J-, informed by the authorities to which he had referred, especially the decision of Brooking J in JLW (Vic), the primary judge examined the award and the evidence to conclude that the arbitrators had not engaged in speculation or guesswork.
- At J-, the primary judge rejected the legal contention that the arbitrators, having rejected Mr Acton’s evidence, were bound to apply Mr Williams’ evidence, referring to various cases, including Thurston v Todd (1966) 84 WN (Pt 1) (NSW) 231 at 246, and Ramsay v Watson  HCA 65; 108 CLR 642 at 645.
The hearing rule
- At J-, the primary judge made reference to a number of cases in identifying the hearing rule, in particular in the context of arbitral hearings: Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation  HCA 41; 113 CLR 475 at 503; Kioa v West HCA 81; 159 CLR 550 at 584; Fox v PG Wellfair Ltd  2 Lloyd’s Rep 514 at 521-522; Interbulk Ltd v Aiden Shipping Co Ltd (The Vimeira)  2 Lloyd’s Rep 66 at 74-75; Mahon v Air New Zealand  AC at 821; F Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry  AC 295 at 369; Trustees of Rotoaira Forest Trust v Attorney-General  2 NZLR 452 at 461-463; Methanex Motunui Ltd v Spellman  1 NZLR 95 at 136; and Starkey v State of South Australia  SASC 34 at -.
- Applying these authorities, the primary judge said at J that:
TCL must establish that in the particular circumstances of this arbitration a reasonable litigant in its shoes would not have foreseen the possibility of reasoning of the type that led to the 14% Starting Point Finding, the Uplift Finding and the Lost Sales Finding or a corollary of it, and that it therefore lost the opportunity to present evidence and argument in anticipation of it.
- At J-, the primary judge reviewed the conduct of the arbitration and concluded that the type of reasoning in the three findings was part of the debate at the arbitration.
Enforcement of the award
- In the light of these conclusions the primary judge was prepared to enforce the award, rejecting various subsidiary arguments of TCL.
The Notices of Appeal
- There are three notices of appeal. Appeal VID 1042 of 2012 concerned the costs judgment delivered on 19 November 2012. The grounds of appeal assumed the success of appeal VID 1043 of 2012, being the appeal from the dismissal of the application to set aside the award. Appeal VID 1044 of 2012 substantially concerned the attack on the Court’s jurisdiction that was the subject of the High Court challenge and was not pressed.
- The appeal was therefore in substance concerned with the assessment of the grounds of appeal in VID 1043 of 2012, which are discussed below.
Grounds of legal principle and approach
- The first ground of appeal challenged the primary judge’s conclusion that the word “may” in Arts 34 and 36 gave the Court a discretion to set aside or not enforce the award if the award is found to be in conflict with, or contrary to, the public policy of Australia. This ground was not pressed in the light of the recent decision of the Singapore Court of Appeal in L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd  1 SLR 125. It was submitted, however, that the discretion should have been exercised by his Honour to set aside and refuse enforcement of the award.
- Ground 2 challenged the finding referred to at [13(d)] above that the Model Law required a demonstrated offence to fundamental notions of fairness and justice before the relevant discretion in Art 34 or Art 36 could be exercised.
- Ground 3 challenged the primary judge’s reference to the need to balance the efficacy of enforcing international arbitral awards and the public policy of Australia, and stated that the primary judge should have held that any breach of the rules of natural justice as understood in Australian domestic law required the setting aside or refusal of enforcement of an award.
- Ground 8 was similar to ground 3. It challenged the primary judge’s reliance upon the importance of uniformity of decisions with those of other jurisdictions in dealing with public policy, in circumstances where the legislature had delineated (and constrained) the concept of public policy by reference to the rules of natural justice in Australia.
Grounds concerning the application of the rules of natural justice to the facts here
- Grounds 4 to 7 took up five pages of the notice of appeal. In effect, these paragraphs were a comprehensive re-agitation of the arguments made before the primary judge as to the inadequacies of the factual findings of the arbitrators. Grounds 4, 5 and 6 concerned the asserted lack of evidence for the three critical findings: the 14% Starting Point Finding, the Uplift Finding and the Lost Sales Finding, respectively. Ground 7 dealt with the hearing rule ground, that, in the light of Mr Acton’s conceded lack of expertise, it could not reasonably be anticipated that the arbitrators would make findings as to loss other than ones based on, or in accordance with, Mr Williams’ evidence.
- All of grounds 4 to 7 were without merit. They involved the dressing up of complaints about the factual findings into a claim concerning asserted procedural unfairness. The primary judge (as he himself recognised) went more deeply into the facts than was necessary for the proper and efficient resolution of the matter. That is not said by way of criticism of the primary judge, who undertook a careful, and correct, analysis of the facts. Rather, it is said to make clear that nothing in the IAA is likely to permit a party to an arbitration award to spend three days before a judge arguing about the factual findings made by experienced arbitrators after a ten-day hearing, when the substance of the complaint is the evidential foundation for, and reasoning process towards, facts as found.
The proper approach to ss 8(7A) and 19 in relation to natural justice and public policy
- It is convenient to state our conclusions immediately in order that the following discussion of the statutory and jurisprudential background be given some greater focus. If the rules of natural justice encompass requirements such as the requirement of probative evidence for the finding of facts or the need for logical reasoning to factual conclusions, there is a grave danger that the international commercial arbitral system will be undermined by judicial review in which the factual findings of a tribunal are re-agitated and gone over in the name of natural justice, in circumstances where the hearing or reference has been conducted regularly and fairly. That danger is acute if natural justice is reduced in its application to black-letter rules, if a mindset appears that these rules can be “broken” in a minor and technical way and if the distinction between factual evaluation of available evidence and a complete absence of supporting material is blurred. All these things occurred in the argument in this case. Their presence persuaded or required the judge to spend three days reviewing the award that was the product of a ten-day reference. That should not be how such a review takes place. We are not being critical of the primary judge. His reasons are careful, thorough and substantially correct. The application was a disguised attack on the factual findings of the arbitrators dressed up as a complaint about natural justice.
- An international commercial arbitration award will not be set aside or denied recognition or enforcement under Arts 34 and 36 of the Model Law (or under Art V of the New York Convention) unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness. The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition. It does not involve the contested evaluation of a fact finding process or “fact interpretation process” or the factual analysis of asserted “reasoning failure”, as was argued here.
- The illumination and explanation of this approach requires something to be said about the statutory framework, the history of the relevant international instruments, the key notion of “public policy”, the essential characterisation of natural justice, and the legal regimes and jurisprudence in other countries, particularly those in this region.
The IAA and public policy
- The IAA gives effect to Australia’s international obligations as a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration (“the New York Convention”) and also adopts as Australian law the Model Law. The IAA also reflects Australia’s acceptance of the United Nations General Assembly’s recommendation to give “due consideration” to the Model Law in the interests of international uniformity. Though the Model Law is not a treaty, it was the product of detailed international discussion born of a recognition of the lack of harmony and of consistent modern form of national laws on arbitration: see generally the explanatory note by the UNCITRAL secretariat on the 1985 Model Law at 24-25.
- The Model Law dealt with many aspects of arbitration and arbitral procedure not touched upon by the New York Convention, which was broadly limited to protecting, recognising and enforcing awards in the field of international commercial arbitration. Thus, the Model Law deals with such topics as the composition of the arbitral tribunal, the jurisdiction of the arbitral tribunal and its competence, interim measures and preliminary orders, the conduct of arbitral proceedings, the making of the award, the termination of proceedings, and, most importantly for present purposes, the grounds for setting aside the award. The Model Law also deals with subjects covered by the New York Convention: the arbitration agreement, and the recognition and enforcement of awards.
- It is important to recognise that, while the New York Convention dealt with the subject of recognition and enforcement of the foreign award utilising the limited grounds in Art V for refusal of such, it did not purport to regulate the grounds on which an award could be set aside, though the possibility of such an action was recognised by Art V(1)(e). Article V is in the following terms:
- Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
- Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
- The Model Law was designed and drafted to be available to be taken up as a form of national law (as has been done in Australia) to govern international commercial arbitration carried on in the country in question, and in other countries.
- As appears from the travaux préparatoires to the Model Law discussed in H M Holtzmann and J E Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer Law and Taxation Publishers) at p 911ff, the difficult problem of agreeing upon the grounds to set aside an award took up considerable discussion. The debates were substantially concerned with how far the grounds in Art V of the New York Convention (for recognition and enforcement) should be departed from.
- It is appropriate to say something of the notion of “public policy” as it came to be used in Arts 34 and 36 as finally agreed upon. Those articles are in the following terms:
Article 34. Application for setting aside as exclusive recourse against arbitral award
(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.
(2) An arbitral award may be set aside by the court specified in article 6 only if:
(a) the party making the application furnishes proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or
(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or
(b) the court finds that:
(i) the subject matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii) the award is in conflict with the public policy of this State.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the award or, if a request had been made under article 33, from the date on which that request had been disposed of by the arbitral tribunal.
(4) The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.
Article 36. Grounds for refusing recognition or enforcement
(1) Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:
(a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or
(b) if the court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii) the recognition or enforcement of the award would be contrary to the public policy of this State.
(2) If an application for setting aside or suspension of an award has been made to a court referred to in paragraph (1)(a)(v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide appropriate security.
- In Ferguson v Cole  FCA 1411; 121 FCR 402 at 416 , Branson J, after referring to Bond, Mahonand Rajamanikkam considered that it may be that in 2002 the law of Australia was reflected in Mahon, though it was unnecessary to decide the question.
- In Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002  HCA 30; 198 ALR 59, Gleeson CJ at 62  again endorsed the views of Deane J in Bondconcerning the content of the duty to act judicially.
- In Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations  FCAFC 88; 195 FCR 318 the Full Court (Keane CJ, Lander and Foster JJ) cited Mahonat 820-821. This, however, was in the specific context of the requirement that persons at risk of adverse findings be given an opportunity to be heard on the finding – an aspect of the hearing rule. The Full Court said at 365 :
… the appellant’s entitlement to procedural fairness is measured by the need to ensure that it has an opportunity to place such material before the second respondent as might deter him from making a decision to place the appellant under special administration. [The Court then, in this regard, referred to Mahon.]
- A number of matters can be said arising out of the above cases and discussion. First, the above cases deal with the exercise of public or state power. The context of international commercial arbitration is the exercise of private power through an arrangement and a tribunal to which the parties have consented under a regime wherein errors of fact or law are not legitimate bases for curial intervention: TCL  HCA 5; 295 ALR 596 at 617 .
- Secondly, until the High Court decides otherwise, this Court should respect the binding character of what was said by Mason CJ in Bond. To the extent that cases such as Minister for Immigration and Citizenship v Li HCA 18; 249 CLR 332 may be seen to encompass in the conception of legal unreasonableness notions referred to by Deane J in Bond, that does not require the conclusion that the characterisation of Diplock LJ in Moore or Deane J in Pochi be adopted. As Gageler J said in Li at 371 , procedural fairness is closely linked with reasonableness.
- Thirdly, Deane J in Pochisaw what Diplock LJ said in Moore as necessary to avoid the procedural aspects of natural justice being reduced to a charade. There was, in everything Deane J said, the necessary presence of unfairness in the impugned decision.
- Fourthly, the essence of natural justice is fairness – it is its root as a legal conception and it lies at the heart of its operation. Unless there is unfairness, true practical injustice, there can be no breach of any rule of natural justice. That recognition is vital in the distinction made by Gleeson CJ in Rajamanikkam210 CLR at 232-233  between a conclusion that a decision was not made on evidence and a contest about the proper view of the evidence and the facts; and in the distinction made by Bray CJ in Glenelg at 260. That recognition is also central to an appreciation of what Deane J said in Pochi and Bond, and indeed what Bray CJ said in Glenelg: that in some circumstances the absence of any evidential or material foundation for a decision will betray a decision that had a “futile illusion of fairness” (Deane J in Pochi at 689) or a decision come to without bona fides or with bias or by reference to a test foreign to that proscribed by law (Bray CJ in Glenelg at 260).
- Fifthly, the relevant context of the placement of the rules of natural justice is international commercial arbitration. The Model Law and the IAA embody a framework of law for the regulation of arbitration. The avowed intent of both is to facilitate the use and efficacy of international commercial arbitration: see Resolution 40/72 of the United Nations General Assembly (11 December 1985), Art 5 of the Model Law and s 2D of the IAA. Basal to the working of the New York Convention, Art V and the Model Law, Arts 34 and 36 was the absence of any ground for the review or setting aside or denial of recognition or enforcement of awards because of errors by the arbitrator in factual findings or in the application of legal principle (as viewed by national courts). The system enshrined in the Model Law was designed to place independence, autonomy and authority into the hands of arbitrators, through a recognition of the autonomy, independence and free will of the contracting parties. The a-national independence of the international arbitral legal order thus created required at least two things from national court systems for its efficacy: first, a recognition that interference by national courts, beyond the matters identified in the Model Law as grounds for setting aside or non-enforcement would undermine the system; and secondly, the swift and efficient judicial enforcement and recognition of contracts and awards. The appropriate balance between swift enforcement and legitimate testing of grounds under Arts 34 and 36 is critical to maintain; essential to it is courts acting prudently, sparingly and responsibly, but decisively when grounds under Arts 34 and 36 are revealed. An important part of that balance is the protection by the courts of the fundamental norms of fairness and equality embodied in the rules of natural justice within the concept of public policy.
- This balance reflected in international and Australian policy does not carry with it any necessary implied criticism of national courts. Parties in international commerce may choose arbitral dispute resolution for many reasons: Comandate Marine Corp v Pan Australia Shipping Pty Ltd  FCAFC 192: 157 FCR 45 at 95-96 -; that chosen international legal order depends crucially upon reliable curial enforcement and a respect by the courts for the choice and autonomy of the parties and for the delicate balance of the system. A demand for fairness and equality is at the heart of the supervisory balance, as is a recognition that this is not reflected in mechanical technical local rules. The real question is whether an international commercial party has been treated unfairly or has suffered real practical injustice in the dispute and litigation context in which it finds itself. Formalism in the application of the so-called rules is not the essence of the matter: fairness and equality are. How unfairness is revealed or demonstrated in any particular case will depend on the circumstances. The requirement of a fair hearing in an international commercial arbitration has been discussed in many cases. Reference need only be made to the cases cited by the primary judge and referred to at  above. As Goff LJ said in The Vimeira  2 Lloyd’s Rep at 74-75, the question is whether the hearing was fair. For a recent example of the relationship between fairness and expedition, see Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd  FCAFC 109; 304 ALR 468.
- The above leads one to the conclusion that Arts 34 and 36 should be seen as requiring the demonstration of real practical injustice or real unfairness in the conduct of the reference or in the making of the award. The rules of natural justice are part of Australian public policy. The assessment as to whether those rules have been breached by reference to established principle is not a matter of formal application of rules disembodied from context, or taken from another statutory or human context. The relevant context is international commercial arbitration. No international arbitration award should be set aside for being contrary to Australian public policy unless fundamental norms of justice and fairness are breached. Each of Art 34 and 36 contains a form of discretion or evaluative decision: “may be set aside” (Art 34), “may be refused only” (Art 36). It is not profitable to seek to differentiate between the engagement of public policy under the Articles and a supposedly separate and a later question whether to exercise the discretion; nor is it profitable, but only likely productive of difficulty or error, to read into Arts 34 and 36 any precise notions of required prejudice or other preconditions to the exercise of any discretion. The provisions (ss 8(7A), 19 and Arts 34 and 36) deal with fundamental conceptions of fairness and justice. It suffices to say that no international award should be set aside unless, by reference to accepted principles of natural justice, real unfairness and real practical injustice has been shown to have been suffered by an international commercial party in the conduct and disposition of a dispute in an award. It is likely that real prejudice, actual or potential, would be a consideration in the evaluation of any unfairness or practical injustice.
- It is unnecessary for present purposes to answer the question whether making a finding of fact without probative evidence should ever be characterised as a breach of the rules of natural justice. It is sufficient to accept without the benefit of argument that it may be; but in this statutory context, such will form the basis of effective review or non-recognition or non-enforcement for breach of the rules of natural justice only if real unfairness or real practical injustice is suffered thereby. Were such question to be addressed, regard would need to be had to the history of the development of natural justice or procedural fairness; to the question whether it is a safeguard of fairness in process or something more directed to fairness of the outcome; to the question whether natural justice is a defining or informing basis for legal unreasonableness; to the works and approaches of scholars and law reformers such as HWR Wade, Administrative Law (2nded at pp 194-195, 3rd ed at p 213, 5th ed at p 485, 10th ed at p 435); the Kerr Committee Report in 1973 (Prerogative Writ Procedures: Report of Committee of Review (Cth Parliament 1973)) at  where the “no evidence ground” was identified as separate from natural justice, as is now reflected in the Administrative Decisions (Judicial Review) Act 1977 (Cth), ss 5(1)(a),(h) and 5(3); and M Aronson and M Groves, Judicial Review of Administrative Action (5th ed) at pp 398-405 [7.20]-[7.30]; and, critically, to the influence of context (here, international commercial arbitration) on the fashioning of the proper content and reach of generally expressed rules designed to secure fairness. In this context, it can be readily accepted that, under various legal regimes, courts have been concerned with reviewing arbitral awards made in the absence of probative evidence, especially by reference to the distinction between a trade arbitration before a commercial person chosen for his or her factual experience and an arbitration conducted by someone not chosen with that experience: Wright v Howson (1888) 4 TLR 386 at 387; Mediterranean & Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd  2 All ER 186 at 187-188; Fox v PG Wellfair Ltd  2 Lloyds Rep 514 at 521-522; Motrix Supplies Pty Ltd v Bonds and Kirby (Victoria Avenue) Pty Ltd (Sup Ct of NSW Commercial Division, 12 September 1990, Giles J, BC9002025) at 21.
- In most, if not all, cases a party who says that it has suffered such unfairness or practical injustice should be able to demonstrate that without the kind of detailed re-examination of the facts that occurred in this case. Applications involving review, enforcement and recognition under Arts 34, 35 and Art 36 (or Art V of the New York Convention) should not be permitted to be used (or hijacked) to undertake, in substance, a rehearing of factual or legal reasoning under the guise of a complaint about a breach of the rules of natural justice based on the “no evidence rule”. Unfairness or practical injustice in the conduct of international commercial arbitration should, if it exists, be able to be expressed shortly and, likewise, demonstrated tolerably shortly. It will not be demonstrated as a result of a detailed factual analysis of evidence regularly and fairly brought forward involving asserted conclusions of facts different to those reached by the arbitrator. If a party can demonstrate that it has been, in essence, denied the opportunity to be heard on an important and material issue as revealed by such a finding made without material, real unfairness or real practical injustice may be shown. That was not the case here.
The law in the region
- Before turning to the immediate reasons for the dismissal of the appeals here, it is appropriate to say something of the learned and helpful decisions of courts in the region to assist in the recognition of the relevant principle.
- Before dealing with cases in New Zealand and Singapore, it is necessary to say something of the relevant legislation in the region, and its development. New Zealand, Singapore and Hong Kong have based their legislation on the Model Law.
New Zealand legislation
- In New Zealand, the Model Law was modified and made the law of New Zealand as a Schedule to the Arbitration Act 1996 (NZ). Article 34 was amended by adding paras (5) and (6). Paragraph (5) is presently irrelevant; para (6) is in the following terms:
(6) For the avoidance of doubt, and without limiting the generality of paragraph (2)(b)(ii), it is hereby declared that an award is in conflict with the public policy of New Zealand 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 –
(i) during the arbitral proceedings; or
(ii) in connection with the making of the award.
- The only relevant difference between Art 34(6) in the New Zealand Act and s 8(7A) or s 19 is the clarification contained in paras (6)(b)(i) and (ii), which calls to mind the argument of Castel below, rejected by the primary judge, and (perfectly correctly) not agitated on appeal (see [13(f)] above).
- The origin of the New Zealand legislation was a report of that country’s Law Commission, which in October 1991 recommended a new legislative framework for both domestic and international arbitration in New Zealand (Law Commission (NZ), Arbitration (Report No 20, 1991), ix). The report recommended the insertion of a new paragraph (6) similar to that set out above, except that the words of subparagraph (6)(b)(i) were not present in the Commission’s draft. The Commission’s explanation of its proposal was as follows:
 Paragraph (6) elaborates the meaning of “public policy” for the purposes of setting aside an award under article 34, and follows closely the wording of s 19 of the [International Arbitration Act 1974 (Cth)]. Although the [International Arbitration Act 1974 (Cth)] includes this provision as a section of the Act, rather than in the Model Law, a somewhat similar provision was added to article 34(2)(a) of the Model Law as applied in Scotland. We believe that the provision is appropriately placed in that article (and also in article 36 where there is also a reference to “public policy”).
 We have hesitated before including the reference to “the rules of natural justice” in article 34(6)(b) for two reasons. First, the principal rules of natural justice, an impartial decision-maker, and a proper opportunity to be heard, are clearly embodied in articles 12, 18, and 24. Second, the thrust of the Model Law, and of the draft Act, involves a reduction in judicial involvement in arbitral proceedings, and an expansive approach to judicial review by New Zealand courts would contradict that thrust. Nevertheless, we have concluded that the Australian provision should be followed: the significance of natural justice in arbitral proceedings can be emphasised; and many recent decisions of New Zealand courts show that our judges are sensitive to their relatively limited role in arbitrations.
- The mention of the Model Law as applied in Scotland in the first paragraph above appears to refer to the insertion of a new subparagraph 34(2)(a)(v) in the version of the Model Law given the force of law in Scotland by s 66(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 (UK). That new paragraph, which appeared in Schedule 7 of that Act, read as follows:
(2) An arbitral award may be set aside by the court specified in article 6 only if:
(a) the party making the application furnishes proof that:
(v) the award was procured by fraud, bribery or corruption …
- The provision (enacted for a jurisdiction with a civilian tradition) made no mention of natural justice.
- After a bill to implement the recommendations of the Law Commission was introduced in the New Zealand Parliament in 1995, it was referred to the Government Administration Committee. That committee received a submission that the “natural justice” provision, as it was then drafted (referring only to breaches of natural justice “in connection with the making of the award”), was too narrow, “as breaches can occur during the course of the arbitration as well.” The Committee agreed with this submission, recommending that Art 34 of Schedule 1 of the bill (which contained the Model Law) “be extended to cover the entire course of the arbitration”. The Parliament accepted the recommendation, and Art 34 passed into law in its present form when the bill was enacted in 1996.
- In Singapore, the Model Law has the force of law by virtue of s 3(1) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (Sing). Section 24 of the same Act deals with the setting aside of arbitral awards on the ground of a breach of the rules of natural justice:
Notwithstanding Article 34(1) of the Model Law, the High Court may, in addition to the grounds set out in Article 34(2) of the Model Law, set aside the award of the arbitral tribunal if –
(a) the making of the award was induced or affected by fraud or corruption; or
(b) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.
- The Singapore Act is the result of recommendations contained in an August 1993 report of the Singapore Law Reform Committee’s Sub-Committee on Review of Arbitration Laws (Law Reform Committee (Singapore), Sub-Committee on Review of Arbitration Laws: Report (1993)). The wording proposed by the sub-committee was slightly different to that which was ultimately enacted. The sub-committee expressed its draft clause 24 as follows:
Without prejudice to Article 34(2) of the Model Law, the High Court may on the application of any party to an arbitration set aside the award of the arbitral tribunal if –
(a) the making of the award was induced or affected by fraud or corruption; or
(b) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.
- The only difference is in the clarification of the provision’s relationship to paragraphs 34(1) and 34(2) of the Model Law.
- Section 24, as enacted, states that the grounds for setting aside an award enumerated in the provision are “in addition” to those contained in Art 34(2). This suggests the Singapore Parliament did not see a breach of the rules of natural justice as necessarily contrary to public policy.
- The sub-committee’s report included a section outlining its consideration of the question “whether ‘public policy’ should be defined, and if so to what extent” (at ). The conclusion in the sub-committee’s report at  was as follows:
The Committee is of the view that it may be neither wise nor possible to define the scope and extent of “public policy”. In the New Zealand draft, a new s 34(6)(b) [sic: Art 34(6)(b)] was proposed to explain “public policy” but the Committee does not think that this definition would be helpful, as it is expansive in nature. The use of the term “rules of natural justice”, especially, provides a wide discretionary basis for curial intervention in arbitration. Instead, an attempt should be made to prevent certain situations, such as the power of arbitrators to grant civil reliefs based on certain statutes, from being characterised as contrary to “public policy”.
- The sub-committee, after setting out the avenues for curial intervention in the arbitral process under the Model Law (including Art 34), also recommended the express inclusion of references to corruption, fraud and “partiality” (the latter in its commentary, but not in its proposed draft) (at ).
- Whilst it is apparent that the sub-committee and legislature in Singapore did not have the same view as the Parliaments in Australia and New Zealand that the insertion of the rules of natural justice into the concept of public policy was for the avoidance of doubt, it is clear that the Singapore sub-committee report (as did the New Zealand Law Commission report) identified s 19 of the IAA as a source of law for what became s 24 of the Singapore Act. (See Annex VI to the report.)
Hong Kong legislation
- Implementation of the Model Law in Hong Kong was first recommended in a report of the Law Reform Commission of Hong Kong in September 1987. The proposal made its way into law via the Arbitration (Amendment) (No 2) Ordinance(No 64 of 1989) of November 1989, which amended the pre-existing legislative regime.
- The Commission recommended wholesale adoption of Art 34 of the Model Law without amendment. There was no attempt to clarify the meaning of “public policy” or to specify that an award could be set aside where there had been a breach of natural justice. The Commission’s stated approach to adoption of the Model Law was to “give primacy to the international recognisability and acceptability of the law and to leave it as little changed as possible” (Law Reform Commission of Hong Kong, Report on the Adoption of the UNCITRAL Model Law of Arbitration (September 1987), 13). Observing that a number of provisions of the Model Law were not, in its opinion, entirely satisfactory, the Commission nonetheless thought it “far better to leave them as they stand, rather than tinker with them in an attempt to improve them, thereby causing only confusion to those foreign parties who wish to be sure they know what Hong Kong’s law for international commercial arbitration is”: Law Reform Commission Report at 13.
- In any event, when it came to natural justice and its role in the setting aside of awards on public policy grounds, it appears the Commission viewed any clarification along the lines of s 19 of the IAA as unnecessary. The Commission’s commentary on Art 34 appears in a section of the report dealing with provisions that were recommended to be adopted unchanged: Law Reform Commission Report at 13. As to Art 34(2)(b)(ii), the Commission observed that the phrase “public policy” may appear nebulous to a common lawyer (Law Reform Commission Report at 17). This reflects the view of the Mustill report that common law jurisdictions “had not developed any general doctrine of ordre publicin relation to arbitration procedures”:  4 Arbitration Materials 5 at 70. However, the Commission reassured readers that the expression was already familiar to courts in this context, since it appeared in Art V(2)(b) of the New York Convention. The Commission elaborated in the report at 17:
The civil law concept of “order publique” (translated in the English language version of the Model Law as “public policy”) covers fundamental principles of law and justice in procedural as well as substantive respects. These include corruption, bribery, fraud and other serious cases, as well as the elements of the common law concept of natural justice. They would also include a violation of Article 18 (equal treatment of parties).
- Importantly, in light of that last sentence, the Commission’s commentary on Art 18 (also recommended to be adopted unchanged) at 16, read as follows:
This is a particularly significant Article, guaranteeing the rights of the parties to equal treatment. We think it will allow the courts to intervene under Article 34 in cases where for example there has been a failure to abide by the rules of natural justice.
- In other words, any addition of words of the kind made in the Australian, New Zealand and Singapore Acts would, on the Commission’s view, have been otiose. Indeed, even in the section of the Commission’s report at 26 dealing with “additional provisions considered but rejected”, there is no mention of anything resembling s 19 of the IAA or later analogues in New Zealand and Singapore legislation.
- Subsequent to the 1989 enactment of the Model Law in respect of international commercial arbitrations, the Committee on Arbitration Law of the Hong Kong International Arbitration Centre issued a report in 1996 recommending, inter alia, that Hong Kong arbitration legislation be completely redrawn in order to apply the Model Law to both domestic and international arbitrations: Report of the Hong Kong International Arbitration Centre Committee on Arbitration Law(1996). That recommendation was examined and endorsed by the Committee on Hong Kong Arbitration Law, which was established in 1998 by the Hong Kong Institute of Arbitrators in co-operation with the Hong Kong International Arbitration Centre. The Committee reported in April 2003: Hong Kong Institute of Arbitrators, Report of Committee on Hong Kong Arbitration Law (30 April 2003).
- In its commentary on provisions of the Model Law, the Committee made the following observation in connection with Art 30 (dealing with settlement of disputes) at 171:
We recommend that Article 30 is to be adopted unchanged and applies in all cases. We are of the view that, in case an award on agreed terms had been procured by fraud, it should be capable of being set aside under Article 34(2)(b)(ii) in that it is in conflict with the public policy.
- Again, then, “public policy” was considered as evidently encompassing subject matter that other jurisdictions had seen fit explicitly to enumerate in their legislation.
- The recommendations of the Committee were put into the form of a draft bill in a consultation paper of the Hong Kong Department of Justice in 2007: Department of Justice (Hong Kong), Consultation Paper: Reform of the Law of Arbitration in Hong Kong and Draft Arbitration Bill(December 2007). Submissions on that draft were then received. One such submission suggested clarification or specification of the grounds for setting aside an award under draft clause 82(1) (which sought to give the force of law to Art 34 of the Model Law). It was suggested that the provision of the Arbitration Act 1996 (Eng) dealing with setting aside for “serious irregularity” should be emulated (see Arbitration Act 1996 (Eng) s 68). The Department of Justice rejected the submission, explaining that it did not want to cause confusion as to whether or not Hong Kong was a Model Law jurisdiction: Department of Justice (Hong Kong), Summary of Submissions and Comments on the Consultation Paper on Reform of the Law of Arbitration in Hong Kong and Draft Arbitration Bill (2009), 21.
- The bill to revise Hong Kong’s arbitration regime was introduced in the Legislative Council in June 2009. Having been the subject of report by the Bills Committee, it was enacted as the Arbitration Ordinance(Cap 609) (HK) in November 2010, and it came into force on 1 June 2011. Section 81 of the ordinance enacts Art 34 of the Model Law without amendment.
The relevant international case law
- As already referred to, the influence of Moore and Mahon in New Zealand is the foundation for the proposition that making findings of fact in the absence of probative evidence is a breach of the rules of natural justice in an arbitral context.
- The New Zealand decisions of Trustees of Rotoaira Forest Trust v Attorney-General  2 NZLR 452 (Fisher J); Methanex Motunui Ltd v Spellman  1 NZLR 95 (Fisher J); Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd  2 NZLR 614 (Court of Appeal); Downer-Hill Joint Venture v Government of Fiji  1 NZLR 554 (Wild and Durie JJ); Gallaway Cook Allan v Carr  1 NZLR 826 (Court of Appeal) are not in any way inconsistent with the above expression of principle and approach. The following matters of concordance or agreement should be noted.
- First, the helpful (if we may respectfully say so) but not determinative, expression of approach by Fisher J in Trustees of Rotoaira Forest Trust at 463 in paras (a) – (j) accords with the need for real unfairness or real practical injustice in the litigation context of international commercial arbitration: see, in particular, paras (b), (e), (f), (g), (i) and (j).
- Secondly, the balance between party autonomy and finality on the one hand, and fairness through natural justice and the fundamental norm of equality on the other, was discussed by Fisher J in Methanex at 110-113 -. That was not in aid of the introduction of review by reference to technical rules, but by reference to basal standards of fairness and equality that are internationally recognised.
- Thirdly, the scope of “public policy” is to be narrowly confined: Amaltalat 625-626 -, and Downer-Hill at 568-571 -.
- Fourthly, the Court in Downer-Hill recognised the need for the display of unfairness in a real sense. The judgment of Wild and Durie JJ concerned a successful application to strike out, summarily, an application to set aside an award of the International Court of Arbitration at Paris. The application to set aside the award contained a number of grounds but relevantly for the present appeal included grounds that resonate with TCL’s arguments here (which are dealt with later): the findings of numerous facts asserted to have been unsupported by evidence and/or unreasonably found or against the weight of probative evidence; the finding of facts and dealing with issues in an unforeseen way and in a way not conformable with the underlying contract (see Downer-Hill at 559 ). The Court accepted the Mahonformulation of the “no evidence rule”; the Court required that there be demonstrated a substantial miscarriage of justice: 570 , their Honours saying:
Even assuming that Downer could establish a breach of the [Mahon] ground of natural justice, the “public policy” requirement in art 34 imposes a high threshold on Downer. The phrases “compelling reasons” and “a very strong case” are employed in the judgments of the Hong Kong Court of Appeal in Hebei Import and Export Corporation v Polytek Engineering Co Ltd  2 HKC 205 at pp 211 and 215. Hebei involved an application to set aside a foreign award. To warrant interference there must be the likelihood that the identified procedural irregularity resulted in a “substantial miscarriage of justice”: Honeybun v Harris  1 NZLR 64 at p 76. That entails the impugned finding being fundamental to the reasoning or outcome of the award. The Court of Appeal suggested in Amaltal (at para ) that the arbitrator’s findings of fact should not be reopened unless it was “obvious” that what had occurred was contrary to public policy.
- The Court in Downer-Hill then dealt with the matter at a summary strike-out level. After that review, the Court at 575 - by way of emphasis of approach referred to what Lord Mustill said in the Privy Council in a New Zealand appeal in Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd 3 NZLR 338n at 338-339, as follows:
 We accept Fiji’s argument that the Court’s role where evidentiary inadequacy is alleged is to ensure that there was evidence to support the impugned finding. Or, conversely, that the burden on the party alleging inadequacy is to establish that there was no evidence. Downer has not discharged that onus. Mr Johnston concluded his oral submissions by referring us to the following part of Lord Mustill’s opinion in Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd  3 NZLR 338 (PC) at pp 338-339:
LORD MUSTILL.  Arbitration is a contractual method of resolving disputes. By their contract the parties agree to entrust the differences between them to the decision of an arbitrator or panel of arbitrators, to the exclusion of the Courts, and they bind themselves to accept that decision, once made, whether or not they think it right. In prospect, this method often seems attractive. In retrospect, this is not always so. Having agreed at the outset to take his disputes away from the Court the losing party may afterwards be tempted to think better of it, and ask the Court to interfere because the arbitrator has misunderstood the issues, believed an unconvincing witness, decided against the weight of the evidence, or otherwise arrived at a wrong conclusion. All developed systems of arbitration law have in principle set their face against accommodating such a change of mind. The parties have made a choice, and must abide by it. This general principle is, however, applied in different ways under different systems, according to the nature of the complainant.
 Where the criticism is that the arbitrator has made an error of fact, it is an almost invariable rule that the Court will not interfere. Subject to the most limited exceptions, not relevant here, the findings of fact by the arbitrator are impregnable, however flawed they may appear. On occasion, losing parties find this hard to accept, or even understand. The present case is an example.
 At the other extreme are complaints that the decision has been reached by methods which are unfair, contrary to natural justice, in breach of due process, or whatever other term is preferred. With very few exceptions all systems of law permit the injured party some means of recourse. They need not be explored, since there are no such allegations here.
 Mr Johnston suggested that Downer’s application to set aside the award represented exactly the sort of “change of mind” Lord Mustill refers to. We suspect that submission is not far wide of the mark. Having agreed to arbitrate its very substantial claims, and having had them largely rejected by the arbitral tribunal following a lengthy hearing, Downer is essentially seeking to have the Court upset the result, so that it can rerun its claims. As Lord Mustill observes, the Courts have set their face against accommodating that.
- Fifthly, the Court of Appeal in Gallaway Cook Allan  1 NZLR 826 discussed the nature of the discretion in Art 34. The Court’s expression of view is, with respect, a helpful expression of the balance between finality and curial review, to the effect that the circumstances of a case such as Downer-Hill demand, for asserted breaches of the rules of natural justice to be made out, demonstrated unfairness or practical injustice in the context of the litigation between the parties before an award will be set aside or not enforced. The Court said at 846 :
The discretion vested by art 34 is of a wide and apparently unfettered nature. We are satisfied it must be exercised in accordance with the purposes and policy of the Arbitration Act. Two specific purposes are to encourage the use of arbitration as an agreed method of resolving commercial and other disputes; and to facilitate the recognition and enforcement of arbitration agreements and arbitral awards. The principles and philosophy behind the statute are party autonomy within its framework, equal treatment, reduced court intervention and increased powers for the arbitral tribunal. Parliament has clearly stated its intention that parties should be bound to accept the arbitral decision where they have chosen that method of resolution. The recognised benefits of arbitration include speed, economy, choice of forum, anonymity and finality, the last by allowing the parties to limit their rights of appeal even though they cannot contract out of art 34.
- The Singapore decisions, likewise, are not, subject to the comments below, inconsistent with the above expression of principle and approach: see John Holland Pty Ltd (fka John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan)  2 SLR 262 at 271  (Choo Han Teck JC); PT Asuransi Jasa  1 SLR at 619-622 -; Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte Ltd  SGCA 28;  3 SLR(R) 86 at 102-120 - (Singapore Court of Appeal); Pacific Recreation Pte Ltd v SY Technology Inc  SGCA 1;  2 SLR(R) 491 at 508-510 - (Singapore Court of Appeal); CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK  SGCA 33;  4 SLR 305 at 317-318 - (Singapore Court of Appeal); Kempinski Hotels SA v PT Prima International Development  SGHC 171;  4 SLR 633 at 656 , 664-665 - (Judith Prakash J); LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd  SGCA 57;  1 SLR 125 at 139-142 - (Singapore Court of Appeal); PT First Media TBK v Astro Nusantara International BV  SGCA 57 at  (Singapore Court of Appeal); TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd  SGHC 186 (Chan Seng Onn J).
- The following matters should be noted.
- First, there has been no authoritative recognition of the “no evidence rule” as part of the rules of natural justice. In Kempinski Hotelsat 656 , Judith Prakash J said the following:
As is well known, the concept of natural justice comprises two rules. The first is that the adjudicator must be disinterested and unbiased and the second is that the parties must be given adequate notice and opportunity to be heard (see Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte Ltd  3 SLR(R) 86 at  …
- In Soh Beng Teeat 109 , the Court of Appeal, in its discussion of the hearing rule at 108-115 -, cited Marks J in Gas & Fuel Corporation  VR 365 (referred to at  above), where his Honour expressed the rules of natural justice as comprising the bias rule and the hearing rule.
- The emphasis of the Court of Appeal in Pacific Recreation (see 509  especially) was on the fairness of the hearing, not on the legitimacy of the foundation of the factual findings.
- In TMM Division Maritimaat -, Chan Seng Onn J noted the primary judge’s decision here and remarked that the “no evidence” rule had not yet been accepted in Singapore as part of the rules of natural justice, and referred to a decision of Judith Prakash J that could be seen to be to the contrary: Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd  SGHC 62;  3 SLR 1.
- Secondly, in CRW Joint Operation VK Rajah JA, delivering the judgment of the Court at 317-318 -, expressed the balance between finality and interference in a helpful way, emphasising that whilst courts should not interfere lightly in the arbitral process, due process (and fairness accordingly) was fundamental, and the Court should not hesitate to interfere if a ground under Art 34 were clearly established. Later in the reasons, the Court expressed the view at 342-343  that if the existence of a ground under Art 34 were made out the exercise of discretion would be “virtually automatic”. With respect, care needs to be taken when one is dealing with the rules of natural justice. As long as one recognises and emphasises that there is likely to be no breach of such rules unless real unfairness or real practical injustice be demonstrated, the expression of the matter thus will not mislead. There is sometimes, however, a tendency of some to speak of a technical or minor breach of the rules of natural justice: see for instance the primary judge here at J. To the extent that such expression may be acceptable in some contexts, it will be important to recognise that for the discretion under Arts 34 and 36 to be exercised, real unfairness or real practical injustice will need to be demonstrated. Whilst the IAA does not use phraseology of “prejudice” as does the Singapore Act, such a notion inheres in the conceptions of fairness, unfairness, practical justice and practical injustice. Thus, the expression of view by the Court in Soh Beng Tee at 120  that “only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied” can be seen to be concordant with a notion that real unfairness or real practical injustice must be demonstrated.
- Thirdly, the notion of prejudice or unfairness does not involve re-running the arbitration and quantifying the causal effect of the breach of some rule. The task of the Court in assessing prejudice or unfairness or practical injustice is not to require proof of a different result: see generally the discussion in LW Infrastructure at 140-142 -. If a party has been denied a hearing on an issue, for instance, it is relevant to enquire whether, in a real and not fanciful way, that could reasonably have made a difference. It should be recalled that the proper framework of analysis for the IAA is the setting aside or non-recognition or enforcement of an international commercial arbitration. In that context, it is essential to demonstrate real unfairness or real practical injustice.
The disposition of these appeals
The asserted breach of the rules of natural justice
- Grounds 4 to 7 were a disguised factual challenge to the conclusions of the arbitrators. The contents of the argument on appeal illustrate this. The written submissions simply annex a schedule and invite the Court to examine the record of the arbitration. The oral submissions did likewise.
- The submissions were first directed to the suggestion that there was a higher impact than the 7.4% suggested by Mr Williams. The submissions criticised the “fact interpretation and reasoning functions” of the arbitrators and quarrelled with their interpretation of the contents of Mr Williams’ report. The submissions challenged the weight and value of the evidence of Mr Francis about what he had been told by former customers. This evidence was said not to have “probative value” and placement of weight on it was a failure of “the tribunal’s fact finding and fact interpretation”, thus leading to “its reasoning failure”. Arguments about the evidence sometimes identified some of its hearsay character, going to its weight. Such expressions and such analysis cannot demonstrate a breach of any rule of natural justice, nor even an error of law. They reflect complaints about findings of fact and no more.
- Mr Kwong’s evidence was also criticised as limited in its effect and overstated. It was said also to lack probative value. There are judgments and evaluative assessments of the weight of evidence that was directed to the subject matter in question. Again, the submission referred to the “failure of the tribunal’s fact finding and fact interpretation function” leading to “its reasoning failure”.
- The same kinds of arguments were directed to 14% being a better starting point. The conclusion of the arbitrators was that the factors in A were not sufficiently mentioned in Mr Williams’ report was challenged. This was a debate about the proper evidential evaluation of Mr Williams’ report. Once again, the arbitrators’ evaluation of Mr Williams’ report was said to constitute a failure of “fact interpretation and reasoning function”. There were submissions about the weight given to admissions made by Mr Williams in cross-examination. The proposition drawn by the arbitrators from Mr Williams’ admissions was said to be inconsistent with other evidence.
- The criticism of the arbitrators concerning the need for an uplift from 14% was likewise concerned with the evaluation of the evidence. It was submitted that there was no “clear” evidence; it was submitted that the evidence did not warrant a conclusion of an uplift and that the “fact finding and interpretation functions” led to “reasoning failure”.
- The 22.5% finding was criticised at a number of levels. First, too much weight was said to have been given to an unimportant piece of evidence, being the perceived commercial importance to Castel of the non-competition clause. This was an argument about the weight of a commercial consideration in a context where the people who sought to rely on it, especially Mr Kwong, were cross-examined on the provision and on its importance.
- It was submitted that 22.5% was “pulled from the air”. In a case where the parties called expert evidence, the rejection of Mr Acton’s evidence required the arbitrators, it was submitted, to determine the case on Mr Williams’ evidence. Further, this was said to be reinforced by the lack of available material to permit the arbitrators to “do their best” on sufficient material. Further, it was submitted that there could be no reasonable anticipation by TCL that the arbitrators would approach the matter in this way – that it had been denied a hearing.
- If the reference had been conducted in such a way that the central approach of the arbitrators did not reflect how the case was conducted and could be reasonably seen as a surprise, it might be open to conclude that the parties (and most particularly, of course, the losing party) had been denied the opportunity of a hearing.
- That was plainly not the case here. In a contest such as this about the effect of wrongful conduct on a business, expert evidence was obviously relevant and of assistance. The fact that one expert was discounted as unhelpful did not drive the arbitrators to the necessary acceptance of the other. No commercial litigator would have assumed that unless the reference had been run in a way to demand that conclusion. It was not so run. Here there was full cross-examination of Mr Williams. There cannot have been the slightest doubt that his evidence was challenged and that the arbitrators were free to assess all the evidence and reach a result not precisely reflected by either expert. The arena of dispute was between 7.4% and 100%. The approach of Holmes JA in Thurston v Todd (1966) 84 WN (Pt 1) (NSW) at 246 (cited by the primary judge) is a sound reflection of that approach.
- Further, it was plain that the arbitrators were entitled to take all of the evidence and make their own assessment of it. The primary judge referred to the relevant authorities at J-. The principal criticism of this approach was that the facts here required real speculation and a guess about quantification. Emphasis was placed by TCL on JLW (Vic) Pty Ltd v Tsiloglou  1 VR 237 and on Schindler Lifts Australia Pty Ltd v Debelak(1989) 89 ALR 275. The criticism of the primary judge was truly one of the evaluation of the evidence, not one of principle. At one level there is a tension between Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 and cases such as Schindler. As Pincus J said in Schindler 89 ALR at 319, the evidence brought by someone with an onus may be so inadequate in its totality, when the whole context is examined, that there can be said to be no rational foundation for any proper estimate. In other cases, the court is required to make its best estimate on the materials provided. The proper approach will, in any given case, be an evaluative one influenced by such considerations as the nature of the question, including its amenability to precise proof or assessment, the availability and control of evidence, and the onus of proof. Considerations such as the assessment of evidence according to the power of the party to adduce it will be important to such an evaluation: cf Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970; Cullen v Welsbach Light Co  HCA 3; 4 CLR 990 at 1013-1014; Hampton Court Ltd v Crooks  HCA 28; 97 CLR 367 at 371-372; Parker v Paton (1941) 41 SR (NSW) 237 at 243; Re Alexander; Ex parte Ferguson (1944) 45 SR (NSW) 64 at 67; Vetter v Lake Macquarie City Council  HCA 12; 202 CLR 439 at 454 ;
- The primary judge’s review of the evidence demonstrated that the arbitrators did not engage in guesswork or speculation. Further, the criticism of the arbitrators and of the primary judge’s conclusion reduced to a contest about the evaluation of that evidence. This was particularly clear when it was obvious (and common ground) that Castel’s lost sales were not capable of precise calculation and were not a subject peculiarly within Castel’s power to prove from its own records or knowledge. The subject depended upon how third parties responded or might respond to conduct which was a breach of contract by TCL.
- It is unnecessary to embark on any restatement or reconsideration of the proper approach to the assessment of damages in circumstances where precise evidence of loss cannot be exacted. No criticism was made on appeal of the approach of Brooking J in JLW (Vic) that, to a degree, guided the primary judge at J- in his statement of principle. It can be accepted that if the Court has before it a question about which the Court could reasonably expect a party to bring evidence of some precision and no such evidence is brought, and no explanation is given, the Court may be entitled to say the burden of proof has not been discharged: Ted Brown Quarries 16 ALR at 37 (Gibbs J); or the Court might say that in the circumstances sufficient evidence has been brought to require the Court to do its best: Ted Brown Quarries at 26 (Barwick CJ). The difference will reflect (as it did in Ted Brown Quarries) differences of opinion from the evaluation of the evidence and the circumstances of the litigation. That was the task that the arbitrators undertook. TCL’s complaint is about that evidential evaluation.
- The evidence revealed that TCL received a scrupulously fair hearing in a hard fought commercial dispute. Its complaints are about the evaluation of factual material. No rule of natural justice was breached.
Residual aspects of the submissions of the appellant on the appeal
- The above discussion deals in substance with the arguments put by the appellant. We should, however, finish with a response to one particular submission of the appellant.
- The appellant argued that even so-called minor or technical breaches of the rules of natural justice would suffice for the setting aside or non-recognition or non-enforcement of an international commercial arbitration award, unless the Court could exclude any possibility of a different result being reached. This was said to flow from the lack of any reference to prejudice in the IAA and the unqualified statement of Parliament in effect that any breach of the rules of natural justice was contrary to Australian public policy. This should be rejected for the reasons that we have given. It confuses and misstates the relevant conception of natural justice as one divorced from unfairness or practical injustice, it disembodies the words of Parliament from their statutory context, and it would impute to Parliament an intention to interfere with arbitral awards in a manner that would undermine fatally the facilitation and encouragement of international commercial arbitration in Australia.
|I certify that the preceding one hundred and sixty-nine (169) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and the Honourable Justices Middleton and Foster.|
Dated: 16 July 2014
|IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Vale S.A. & Ors v Steinmetz & Ors (Rev 1)  EWCA Civ 1087 (16 July 2021)
|JUDGE(S):||LORD JUSTICE BEAN
LORD JUSTICE MALES
LORD JUSTICE LEWIS
|REGISTRY:||Royal Courts of Justice
Strand, London, WC2A 2LL
|DATE OF HEARING:||29th June 2021|
|DATE OF JUDGMENT:||16th July 2021|
|CASE MAY BE CITED AS:||Vale S.A. & Ors v Steinmetz & Ors (Rev 1)  EWCA Civ 1087 (16 July 2021)|
|MEDIUM NEUTRAL CITATION:|| EWCA Civ 1087|
|PARTIES:||(1) VALE S.A.
(2) VALE HOLDINGS BV
(3) VALE INTERNATIONAL S.A.
– and –
(1) BENJAMIN STEINMETZ
(2) DAG LARS CRAMER
(3) MARCUS STRUIK
(4) ASHER AVIDAN
(5) JOSEPH TCHELET
(6) DAVID CLARK
(7) BALDA FOUNDATION
(8) NYSCO MANAGEMENT CORPORATION
|REPRESENTATION:||Stephen Houseman QC & Frederick Wilmot-Smith (instructed by PCB Byrne LLP) for the
Sonia Tolaney QC & James Ruddell (instructed by Cleary Gottlieb Steen & Hamilton LLP)
for the Respondents
The 1st to 6th Defendants took no part in the appeal
|Appeal:||Vale SA & Ors v Steinmetz & Ors  EWHC 3501 (Comm)|
Lord Justice Males:
- This appeal is concerned with the impact, if any, of an arbitration award rescinding a contract for fraud on a proprietary claim against a stranger to the arbitration.
- For the purpose of the appeal it is common ground that, upon such rescission, a constructive trust may arise which enables the rescinding party to make a proprietary claim to recover the proceeds of a payment made pursuant to the contract, and that such a claim can be made to recover traceable trust property in the hands of a third party who is not a good faith purchaser for value without notice of the fraud. So if A pays money to B under a contract between them which is then rescinded for fraud, B may hold the money on trust for A. Similarly, if B has transferred the money to C who is not a good faith purchaser for value without notice, it may be held by C on trust for A.
- But the question is whether such a proprietary claim against the third party (C) is barred as a result of an arbitration award between the contracting parties in which it is held, perhaps wrongly, that the rescinding party (A) does not have a personal restitutionary claim to recover the payment in question from its contractual counterparty (B).
- Depending on the answer to that question, a further question may arise from the fact that the payment in question was not made by the contracting party but by another company within the same group. Who then is entitled to make any proprietary claim? Is it the contracting party whose obligation was discharged by the payment made by its subsidiary? Or is it the subsidiary who actually made the payment?
The factual background
- The context in which these issues arise is a joint venture agreement dated 30th April 2010 between Vale S.A. (the first claimant in the action and the first respondent to the appeal, or A in the illustration above) (“Vale”) and a company called BSG Resources Ltd (“BSGR” or B in the illustration above), pursuant to which BSGR sold 51% of a subsidiary company, BSG Resources (Guinea) Ltd, to a wholly owned subsidiary of Vale. The price included an Initial Consideration of US $500 million payable by Vale. In fact the payment was not made by Vale itself but was made, upon Vale’s instructions, by Vale International S.A. (the third claimant in the action and the third respondent to the appeal) (“Vale International”).
- BSGR was owned by Nysco Management Corporation, a BVI company which is the eighth defendant in the action and the second appellant (“Nysco”). Nysco was owned by Balda Foundation, a Liechtenstein Foundation which is the seventh defendant in the action and the first appellant (“Balda”). The beneficiaries of Balda are the first defendant, Mr Benjamin Steinmetz, and members of his family. It is common ground for the purpose of this appeal that at least some part of the Initial Consideration received by BSGR was transferred to Balda and Nysco (together “the appellants”, or C in the illustration above). It must be assumed, although this will if necessary be a matter for investigation at trial, that the payments thus made to the appellants can be traced into their accounts in accordance with standard principles of tracing in equity.
- The joint venture agreement was concluded because a wholly owned subsidiary of BSG Resources (Guinea) Ltd held valuable mining licences from the Republic of Guinea entitling it to exploit substantial deposits of iron ore. Unfortunately, however, the Government of Guinea revoked those licences after the joint venture had been concluded on the ground that they had been procured by bribery.
The LCIA award
- Revocation of the licences gave rise to a claim by Vale against BSGR for (among other things) rescission of the joint venture agreement for fraudulent misrepresentation. Because the joint venture agreement provided for arbitration in London under LCIA Rules, that claim was pursued in arbitration before a tribunal consisting of Sir David A R Williams QC, Dr Michael Hwang and Professor Filip de Ly (Chairman), all wellknown international arbitrators. It was evidently a substantial arbitration, lasting over five years and resulting in an award running to 280 pages and 1005 paragraphs. Some further indication of the scale of the arbitration can be seen from the fact that Vale’s lawyers charged a total of US $20 million, while the arbitrators’ fees amounted to over £1.5 million.
- In their award, dated 4th April 2019, the arbitrators upheld Vale’s claim for fraudulent misrepresentation and, as a result, made an order rescinding the joint venture agreement. However, they rejected Vale’s claim in restitution for the return of the Initial Consideration. Mr Stephen Houseman QC for the appellants subjected the arbitrators’ reasoning to a close analysis and I therefore set out the relevant paragraphs of the award (the emphasis is the arbitrators’):
“920. The Tribunal holds that BSGR has not fulfilled its burden to establish the bar of restitutio in integrum impossible [sic.], and that Vale is entitled to equitable rescission of the Joint Venture Agreements.
- In considering the orders to make to achieve restitutio in integrum, the Tribunal recalls that the objective of rescission is to place the Parties in their original positions as far as possible by ordering each side to return the benefits it has received from the other side. In this connection, the Tribunal notes that rescission only envisages the return of benefits which one party transferred to the other party, and does not envisage the return of benefits that one party originally transferred to a third party.
- In this case, Vale claims the return of (1) the Initial Consideration; (2) the Outstanding Loan Amount; (3) the Feasibility Study Funding; and (4) Internal Costs. The Tribunal considers that the first three heads cannot be claimed under rescission, and the Tribunal cannot order BSGR to pay these sums to Vale as part of its rescission order, because they do not involve transfers of money from Vale but involve transfers of money from Vale’s subsidiaries:
922.1. The Initial Consideration was paid by Vale International to BSGR. …
- The Tribunal also considers that the fourth head of Internal Costs cannot be claimed under rescission because, although the Internal Costs were paid by Vale, the recipient of these payments was not BSGR.
- Accordingly the Tribunal must next consider if these sums can be claimed as damages for fraudulent misrepresentation.”
- The arbitrators went on to consider whether Vale could recover the same sums (including the Initial Consideration) as damages for fraudulent misrepresentation. They concluded at paragraph 944 that it could (again, the emphasis is in the award):
“944. As the Tribunal has explained at paragraph 926 of this Award, the claimant is entitled to all expenditures which he had incurred in reliance on the defendant’s representation. So when the question arises as to the causative link between the tort of deceit and the losses suffered, the law only asks one question: did the claimant incur those losses in reliance on the defendant’s representation? Once it is shown that the claimant did so rely, the causative link is established, and the loss is taken to have directly flowed from the deceit. BSGR may claim that there was a slump in iron ore value, or an intervening act in the form of the [Government of Guinea’s] revocation of the mining rights, but these arguments are wholly immaterial. All that matters is whether Vale incurred these losses in reliance on BSGR’s deceit for the purpose of establishing the causative link. Framed as such, this must be answered in the affirmative. The Tribunal has found at paragraph 724 above that Vale relied on BSGR’s deceit to enter into the Framework Agreement [i.e. the joint venture agreement] and the SHA and suffered loss as a result.”
- Accordingly the arbitrators awarded damages to Vale which included US $500 million in respect of the Initial Consideration. The material parts of their formal award, which they called the “Dispositif”, were as follows:
“1004. For all of the foregoing reasons and rejecting all submissions to the contrary, the Tribunal hereby FINDS (paragraph 676) that the Claimant has established its case alleging fraudulent misrepresentation. All other causes of action by Vale are hereby dismissed.
- As a consequence of its finding in paragraph 1004, the Tribunal hereby ORDERS AND AWARDS the following relief.
1005.1 The Tribunal hereby rescinds the Framework Agreement and the SHA on account of fraudulent misrepresentation (paragraph 920).
1005.2 The Tribunal orders BSGR to pay forthwith to Vale damages of USD 1,246,580,846 on account of fraudulent misrepresentation (paragraph 980).”
- The arbitrators’ further award of interest and costs need not be set out.
- BSGR has not paid any part of the sum awarded.
The proprietary claim in this action
- In the present action the claimants make various claims against Mr Steinmetz, his companies and others, including the appellants, who are alleged either to have been involved in the fraud or to have received its proceeds, directly or indirectly. The appellants, who were not parties to the arbitration, deny any fraudulent conduct. However, they accept for the purpose of this appeal that the claimants have a properly arguable case that the joint venture agreement was procured by fraud.
- One such claim is a proprietary claim over assets held by the appellants as the recipients of traceable proceeds of the Initial Consideration.
- It was common ground for the purpose of the application before the judge and the appeal before this court that, if a contract is voidable for fraud, the innocent party’s right to rescind the contract gives rise to an equity (referred to in argument as a “rescission equity”), such that upon rescission a payment made by the rescinding party is impressed with a constructive trust (a “rescission trust”) (see the discussion at Goff & Jones, The Law of Unjust Enrishment, 9th Ed (2016), paras 40-18 to 40-28 and Snell’s Equity, 34th Ed (2019), paras 2-006 and 2-007). It was also common ground for the purpose of the appeal that this rescission equity can in principle be asserted against a third party transferee of the payment who is not a good faith purchaser for value without notice of the fraud; and that the appellants were not such good faith purchasers for value.
- Accordingly, on the basis that some or all of the Initial Consideration of US $500 million was transferred to the appellants, the claimants’ case is that upon rescission of the joint venture agreement the money in the appellants’ hands was impressed with a rescission trust in favour of either Vale or Vale International so as to give rise to a proprietary claim against them.
- However, the appellants contend that no such rescission trust arose against BSGR in this case because of the way in which the arbitrators dealt with the issue of rescission in the arbitration and that, as a result, no proprietary claim is available against either of them as transferees of the Initial Consideration from BSGR. By an application notice dated 18th May 2020 the appellants sought summary judgment dismissing the proprietary claim against them. They accepted that the claims as a whole would have to go to trial, but submitted that this proprietary claim is bad in law as a result of the award in the arbitration between Vale and BSGR (and for other reasons rejected in the court below with which we are not now concerned) and that its summary dismissal would reduce the scope of the issues to be determined at trial.
- The judge, Mr Justice Andrew Baker, was sceptical whether the summary dismissal of the proprietary claim would make much difference to the scope of the trial, but nevertheless determined the application. He held that the award did not afford the appellants any defence to the proprietary claim made against them and that nothing was likely to emerge at trial to change this position. Accordingly he not only dismissed the application for summary judgment, but made a declaration that the award did not afford the appellants any defence to the proprietary claim pleaded against them.
- Mr Justice Andrew Baker held that, although the arbitration award was binding for what it decided as between Vale and BSGR, and even though it might now be too late for Vale to assert a proprietary claim against BSGR, the award did not affect Vale’s claim against the appellants. Just as the appellants as non-parties were not bound by the arbitrators’ findings (it has not been suggested that they should be regarded as privies of BSGR for the purpose of any res judicata argument), neither was Vale bound by the arbitrators’ view expressed in paragraphs 921 and 922 of the award that the Initial Consideration payment was not in law the conferring of a benefit on BSGR by Vale. In any event the creation of a rescission trust upon rescission of the joint venture agreement did not depend on any determination by the arbitrators; rather, such a trust arose by operation of law.
- This conclusion made it unnecessary for the judge to decide whether the beneficiary of any rescission trust was Vale or Vale International. The appellants contended that any claim could only be vested in Vale as the party to the joint venture agreement and was barred by the arbitration award. The claimants contended that the claim was vested in Vale International, or at any rate that Vale International had its own proprietary claim; and that even if the award constituted a bar to any claim by Vale, it did not affect Vale International which was not a party to the joint venture agreement or the arbitration. The judge considered that because this issue gave rise to a novel question of law whose answer might depend on a closer analysis of the facts than was possible on the evidence before him, it was best left, if it arose, for determination at trial. Submissions on appeal
- For the appellants Mr Stephen Houseman QC (who did not appear below and who was instructed a few weeks before the hearing when counsel previously instructed became unavailable) submitted, in outline, as follows:
(1) Rescission in equity (which is all that Vale claimed in the arbitration) does not depend on any election by the rescinding party, but is effected by court order (or arbitral award) (Goff & Jones, para 40-28); the order or award granting rescission is itself an act with legal consequences; the court’s (or tribunal’s) decision whether or on what terms to order restitutio in integrum is part of and inextricably connected with the order for rescission itself (as Lord Wright put it in Spence v Crawford  3 All ER 271, 288, “where the remedy [of rescission] is applied, it must be moulded in accordance with the exigencies of the particular case”) and is also, therefore, an act with legal consequences.
(2) Vale did not make any claim in the arbitration for restitution of the Initial Consideration independently of its claim for rescission of the joint venture agreement and the arbitrators therefore had no jurisdiction to determine any such claim. Accordingly paragraphs 920 to 923 of the award must be read together as a determination by the arbitrators that rescission would be ordered, but only on the basis that BSGR had no obligation to return the Initial Consideration by way of restitutio in integrum. The two aspects of this determination (rescission but no restitution) were indivisible.
(3) There can be no proprietary claim by way of a rescission trust against the original contracting party unless that party is also liable to a personal restitutionary claim. That is because the rationale for a rescission trust is that the defendant has been unjustly enriched (Goff & Jones, para 40-17: “a proprietary remedy for unjust enrichment”; In re Goldcorp Exchange Ltd  1 AC 74, 102E per Lord Mustill: “… any such proprietary right must have as its starting point a personal claim by the purchaser to the return of the price”; and National Crime Agency v Robb  Ch 520 per Sir Terence Etherton C at  referring, albeit in passing, to “a proprietary restitutionary remedy for unjust enrichment”).
(4) Although in principle a rescission trust can be asserted against a third party transferee of the contractual payment (C), subject to equitable tracing principles, such a proprietary claim depends upon the availability of a proprietary claim against the original contracting party (B). If the rescission equity never crystallises into a rescission trust available against the original contracting party, there is no trust which can be asserted against third parties whose liability is parasitic on the liability of the original party.
(5) Accordingly the arbitrators’ determination that rescission would be ordered on the basis that BSGR (B) had no obligation to return the Initial Consideration by way of restitutio in integrum means that Vale (A) had no personal claim against BSGR for restitution of the Initial Consideration; therefore no rescission trust against BSGR ever came into existence (or to put it another way, Vale’s rescission equity never crystallised into a rescission trust); and as BSGR (B) never became subject to a rescission trust, transferees of the Initial Consideration from Vale such as the appellants (C) never became subject to such a trust either.
(6) The arbitrators’ determination that BSGR had no obligation to return the Initial Consideration by way of restitutio in integrum constitutes a legal fact (“a fact in the world”), binding Vale for all purposes, with the consequences set out in (5) above.
(7) For Vale to assert otherwise amounts to an abuse of process as a collateral attack on the arbitrators’ award.
(8) Any rescission equity could only belong to Vale as the contracting party with a right to rescind the contract (Independent Trustee Services Ltd v GP Noble Trustees Ltd  EWCA Civ 195,  Ch 91 at  and ); it is logically impossible for Vale International, which never had the equity on which the rescission trust is founded to be the beneficiary of such a trust.
- We did not find it necessary to call upon Ms Sonia Tolaney QC for the respondents, although we have the benefit of her written submissions, in which she took issue root and branch with Mr Houseman’s analysis.
The scope of the appeal
- It is important to keep in mind that we are not concerned on this appeal with whether the claimants or either of them have a viable proprietary claim against the appellants on the basis of a rescission trust. Nor are we concerned with whether it is an essential element of a rescission trust claim by A against a third party transferee of a contractual payment (C) that there should be a personal claim in restitution against the original contracting party (B), a point on which it appears that there is no direct authority. Although Mr Houseman developed a powerful argument why that should be necessary, as outlined above, there are arguments to the contrary: as Lord Millett pointed out in Foskett v McKeown  1 AC 102, proprietary claims to the beneficial ownership of property and restitutionary claims based on unjust enrichment are different, being concerned to enforce different interests and with different defences available to a defendant. These, however, are not issues suitable for summary determination. They should be determined, to the extent they arise, at trial.
- The narrow issue with which we are concerned is whether Vale is bound by (or, to the same effect, whether the appellants can take the benefit of) the arbitrators’ award in these proceedings between Vale and the appellants. For this purpose I propose to consider first what the arbitrators actually decided and then to consider the extent to which, if at all, Vale is bound by that in the present proceedings. I will then deal with the argument about abuse of process. What did the arbitrators decide?
- Mr Justice Andrew Baker observed that the arbitrators’ reasoning is internally inconsistent. They rejected a claim for restitution at paragraphs 921 to 923 of the award on the ground that payment of the Initial Consideration had not been made by Vale but by its subsidiary Vale International, but then awarded damages to Vale at paragraph 944 on the basis that the Initial Consideration was a loss which Vale had suffered. I share the judge’s view (and Mr Houseman expressly accepted) that it is impossible to reconcile these paragraphs of the award. As the judge put it:
“18. Thus, a restitutionary analysis was rejected (at paragraphs 921 to 922 of the LCIA Award) on the basis that the Initial Consideration payment was not expenditure by Vale; and then damages were awarded in respect of the Initial Consideration payment on the basis (set out in paragraph 944) that it was expenditure by Vale. …”
- It would appear, therefore, that the award must be wrong, at least to some extent. Either the Initial Consideration payment was not expenditure by Vale even though it had the effect of discharging Vale’s liability for the Initial Consideration, in which case the arbitrators were right to reject the restitutionary claim but wrong to award damages on the basis that Vale had suffered the loss of this expenditure; or it was expenditure by Vale, in which case the restitutionary claim ought to have succeeded and the damages awarded ought to have been correspondingly reduced.
- Undaunted, Mr Houseman submitted that the arbitrators’ treatment of the claim for rescission at paragraphs 922 to 923 could be “ring fenced”, and that it is on these paragraphs that it is necessary to concentrate to see what the arbitrators decided about that claim. He submitted that the arbitrators’ decision not to make an order for restitution by BSGR of the Initial Consideration was part of and inextricably connected with the order for rescission itself; and that this is a legal fact binding on Vale against all the world. Is Vale bound by the award in these proceedings?
- However, even if the effect of the award is that, as between Vale and BSGR, rescission was ordered on terms which meant that no personal restitutionary claim or rescission trust arose against BSGR, it does not follow that Vale is bound by that determination in these proceedings.
- Arbitration is a consensual process by which the parties agree to resolve disputes between them by accepting the decision of a tribunal chosen by them or in accordance with a procedure which they have agreed. An award thus produced is final and binding on them: section 58 of the Arbitration Act 1996. For this purpose it makes no difference whether the arbitrators’ decision is right or wrong. Although section 69 of the 1996 Act permits an appeal to the court on a question of law arising out of an award, it is open to the parties to exclude any such appeal and the LCIA Rules contain such an exclusion agreement. Accordingly, when parties agree to arbitrate their differences under LCIA Rules, they agree to be bound by the arbitrators’ decision even if the arbitrators get the law or the facts wrong. The only bases on which such an award can be challenged are that the arbitrators acted without jurisdiction (section 67) or that a serious irregularity of the limited kind listed in section 68 resulted in substantial injustice. In the present case the arbitrators’ award may have been wrong in the sense indicated above, but there was no scope for Vale to challenge the dismissal of its restitutionary claim.
- However, while the award is final and binding as between Vale and BSGR, it is not binding on third parties. It is elementary that an arbitrator cannot make an award which is binding on third parties who have not agreed to be bound by his decision (Mustill & Boyd, Commercial Arbitration, 2nd Ed (1989), pages 149-150; Russell on Arbitration, 24th Ed (2015), para 6-183). The position is different if the third party can be regarded as a privy of one of the parties for the purpose of the doctrine of res judicata, but that is not suggested here. Accordingly, it is common ground that as third parties the appellants are not bound by the arbitrators’ decision that Vale was the victim of a fraud. Indeed, until the hearing before us the appellants even challenged in these proceedings the fact that the joint venture agreement has been rescinded and the respondents accepted that they are entitled to do so.
- On this last point, the appellants’ position changed in the course of Mr Houseman’s oral submissions. He accepted that the joint venture agreement has been rescinded by the decision of the arbitrators and that it is not open to the appellants in these proceedings to contend otherwise.1 As we did not call on Ms Tolaney, and as this apparent concession appears to have been somewhat tactical, as I shall explain, I prefer to reserve my position on whether it is correct, not least as the appellants continue to challenge the finding of fraud on which the rescission was premised.
- If the appellants are not bound by the award, what is the principle which enables them to rely on parts of it, and specifically its determination that Vale was not entitled to a restitutionary claim against BSGR, as binding Vale? As I understood it, Mr Houseman puts his case in two ways. The first is that Vale’s proprietary claim depends on establishing the fact that the joint venture agreement has been rescinded, for which purpose Vale needs to invoke the award which contains the order granting rescission; 1 Mr Houseman submitted that this concession, departing from the appellants’ pleaded case, had already been made in the skeleton argument seeking permission to appeal which was settled by counsel then instructed, Mr Paul Stanley QC. That is not, however, how I read the relevant paragraphs. Nor did the respondents understand them in this way. and that it is an intrinsic part of the order for rescission that Vale had no personal claim for restitution by BSGR of the Initial Consideration. The second is an argument of abuse of process.
- I would reject the first way of putting the case. Save for limited purposes not applicable here an award between A and B has no binding effect in proceedings between A and C. The essential reason why this is so derives from the consensual nature of arbitration. Just as C has not agreed to be bound by the decision of arbitrators in an arbitration between A and B, neither has A agreed to be bound by any such decision in any dispute he may have with C. While it may be good business sense in the interests of certainty and finality for A and B to agree to accept the decision of an arbitral tribunal (and in some cases to exclude rights of appeal) even if that decision is wrong, in order to resolve disputes between them, it is quite another thing to say that A agrees to accept the (potentially erroneous and in practice virtually unchallengeable) decision of that tribunal in a subsequent dispute with a stranger.
- In this connection I would refer to two authorities. Ward v Savill  EWCA Civ 1378 was not an arbitration case, but it concerned the effect in later proceedings of a declaration in earlier proceedings as to the existence of a constructive trust following rescission of a contract. In the earlier proceedings against the promoters of film development schemes the claimants obtained declarations that they had been induced to invest in the schemes by fraud and that the promoters and LLPs in which they had invested held the funds invested on trust for them. The claimants then brought further proceedings against the wife of one of the promoters, alleging that a property held by her represented the traceable proceeds of sums beneficially owned by them as a result. They sought to rely on the declarations made in the earlier proceedings to establish their beneficial ownership of the funds invested in the schemes. The question arose whether the declaratory judgements obtained by the claimants in the earlier proceedings had legal effect so as to enable them to found their proprietary claim in the second action without having to re-plead and prove the underlying facts. They argued that the effect of the order made by Mr Justice Butcher in the first action was that the contracts in question were rescinded ab initio with the consequence in law that the beneficial interest never passed to the LLPs. Sir Julian Flaux C (with whom Lady Justice Elisabeth Laing and Lord Justice Warby agreed) rejected this argument on the ground that it would be unjust for a party to be bound by a judgment without an opportunity to be heard, and that this was so even though the first judgment involved declarations as to proprietary rights. He referred to the statement of principle in the well-known case of Hollington v Hewthorn & Co Ltd  1 KB 587, 596-7:
“A judgment obtained by A against B ought not to be evidence against C, for, in the words of the Chief Justice in the Duchess of Kingston’s Case (1776) 2 Sm LC 13th ed. 644, ‘it would be unjust to bind any person who could not be admitted to make a defence, or to examine witnesses or to appeal from a judgment he might think erroneous: and therefore …the judgment of the court upon facts found, although evidence against the parties, and all claiming under them, are not, in general, to be used to the prejudice of strangers’. This is true, not only of convictions, but also of judgments in civil actions. If given between the same parties they are conclusive, but not against anyone who was not a party. If the judgment is not conclusive we have already given our reasons for holding that it ought not to be admitted as some evidence of a fact which must have been found owing mainly to the impossibility of determining what weight should be given to it without retrying the former case. A judgment, however, is conclusive as against all persons of the existence of the state of things which it actually affects when the existence of that state is a fact in issue. Thus, if A sues B, alleging that owing to B’s negligence he has been held liable to pay xl . to C, the judgment obtained by C is conclusive as to the amount of damages that A has had to pay C, but it is not evidence that B was negligent: see Green v New River Co (1792) 4 Term Rep. 589, and B can show, if he can, that the amount recovered was not the true measure of damage.”
- The Chancellor continued:
“81. … It is quite clear from that passage that the appellants’ purported distinction between factual findings in a judgment which are not binding on a stranger to it and the legal effect of a judgment, which the appellants contend is binding on a stranger, is not a distinction recognised by the rule. The citation with approval from the Duchess of Kingston’s case refers to ‘the judgment of the court upon facts found’ distinguishing between the facts and the judgment and, as Mr Mather correctly pointed out, the circumstances of the Duchess of Kingston’s case itself demonstrate that the rule is not limited to findings of fact but extends to the legal consequences of those findings, as determined by a court in its judgment.”
- His conclusion was that the claimants had to plead and prove in the second action all the elements of their proprietary case, which included the existence of the fraud and the fact of rescission:
“92. The appellants should be required to plead and prove all the elements of their case against the respondent that they have a beneficial interest in her property, in the same way as the claimants in Calyon were required to establish against the bank their title to the collection. Nothing in Patten LJ’s analysis of the legal effect of rescission in his judgment in Independent Trustee Services supports the appellants’ case that they can rely upon the Butcher Declarations against the respondent without having to plead and prove all the elements of their case against her that they have a beneficial interest in her property.
- Accordingly, applying both the rule in Hollington v Hewthorn and the wider principle enunciated in Gleeson v Wippell, I consider that the respondent is entitled to require the appellants to plead and prove all the elements of their case against her and that they cannot simply rely upon the Butcher Declarations against her.”
- This case has obvious parallels with the present case, although there are also some differences. Like the present case, it was concerned with whether a decision about rescission and its effect in earlier proceedings between A and B had legal effect in later proceedings between A and C. It holds firmly that the rescission established in the earlier proceedings is not a legal fact binding on C in the later proceedings, but requires to be proved. On the other hand, in Ward v Savill it was A who was seeking to take the benefit of the earlier judgment. In the present case it is C who is seeking to do so.
- The second case, Sun Life Assurance Co of Canada v Lincoln National Life Insurance Co  EWCA Civ 1660,  2 CLC 664, was an arbitration case. In the first arbitration, between Sun Life and a reinsurer, Cigna, the arbitrators held that Cigna was entitled to avoid the reinsurance for misrepresentation and non-disclosure. They added that, if the reinsurance had not been avoided, certain risks (“the Unicover book”) would have been covered under the Cigna reinsurance. The issue in the second arbitration, which was between Sun Life and another reinsurer, Lincoln, was whether the Unicover book would have been covered by the Cigna reinsurance if that had not been avoided. The issue mattered because, if it would have been, the relevant losses could not be recovered from Lincoln; if it would not have been, they could. Lincoln sought to rely on the decision in the first arbitration (to which they were not a party) that the Unicover book would have been covered. They relied on an obiter dictum by Mr Justice Saville in George Moundreas & Co SA v Navimpex Centrala Navala  2 Lloyd’s Rep 515:
“It seems to me that where the rights and obligations of the parties to a contract are determined by the contractual machinery of arbitration under that contract there is something to be said for the view that the result that the arbitrators reach can (in the absence of special circumstances) be treated in effect as part of the contract and thus established by third parties in the same way as any contract can be proved. Thus in the present case the arbitrators have concluded that the sellers [sic.] had a right to cancel the contract and to claim damages as the result of the failure of the buyers [sic.] to perform their obligations under the contract. As between the parties that is now the contractual position as determined by the contractual machinery of arbitration — and it is difficult to see why a stranger to the contract cannot prove that contractual position by simply producing the award as he can prove other contractual rights and obligations by simply producing the contract.”
- This court disapproved this statement of principle by Mr Justice Saville, although it is right to say that the discussion of this issue was itself obiter. Nevertheless, the issue was fully considered. Indeed, Lord Justice Longmore and Lord Justice Jacob went to the trouble of giving concurring judgements on this issue while recognising that strictly it did not arise.
- Giving the leading judgment, Lord Justice Mance pointed out that a feature of the case was that it was the stranger to the first arbitration who was seeking to rely in the second arbitration on the award in the first arbitration. He held that there was no legal principle which would enable it to do so:
“63. … The new principle which Mr Hunter seeks to develop from Saville J’s dicta must, therefore, seek some foundation in legal principle other than the simple considerations of abuse of process which may apply in relation to the administration of justice in court.
- However, as I see it, there is no foundation in legal principle for Mr Hunter’s suggested new principle. First, as I have observed, Saville J’s dicta are open to criticism for failing to distinguish between the relevance in relation to third parties of (on the one hand) the main obligations of a contract and (on the other hand) a judgment or arbitration award regarding such obligations.
- Second, Mr Hunter’s attempt to qualify Saville J’s dicta so as to make them operate only one-way is contrary to ordinary principle. The principles of res judicata and issue estoppel commonly operate mutually. Saville J’s dicta in Moundreas were themselves couched in terms suggesting an extended mutual principle. …
- Thirdly, I do not consider that the arguments based on general justice have the force in the present context which Mr Hunter suggests and which Toulson J accepted. I do not think that it is obviously just, or even convenient, to allow a stranger to enjoy a one-sided entitlement to hold a party to the award or judgment to its terms, with a concomitant right to challenge its correctness whenever it appeared favourable to do so. …
- Fourthly, and linked with the third point, there is a strong element of fortuity about the one-sided benefit for which Mr Hunter contends. Why should Lincoln gain any benefit from an award to which they were not party, particularly in the present context? Sun/Phoenix could not be said to have gained any benefit against anyone — let alone as against Lincoln — from any conclusion by the Cigna tribunal that, but for the avoidance, the Unicover book was protected. Further, if Sun/Phoenix had realised the hopelessness of their case on avoidance and had conceded avoidance or compromised their claim, without any award ever being issued by the Cigna tribunal, Lincoln would have had to arbitrate the scope of the Cigna reinsurances in relation to the Unicover book with Sun/Phoenix without the benefit of any of the present submissions based on the Cigna award. …
- Fifthly, and more fundamentally, the solution for which Mr Hunter contends appears to me to overlook or obscure important differences between arbitration and litigation. In the context of litigation, problems of potentially conflicting judgments arrived at between different parties to the same overall complex of disputes are met by provisions for joinder of parties or proceedings or for trial together, if necessary on a mandatory basis using the courts’ compulsive powers. Even in circumstances in which there has been no such joinder, and where neither res judicata nor issue estoppel has any application, the court may intervene to prevent abuse of its process, as stated in paragraphs 63 and 65 above. All this is facilitated by the public nature of litigation, the public interest in the efficient administration of justice and the courts’ coercive powers. Considerations of general justice of the sort to which Toulson J referred thus have relevance and can be given effect in the context of litigation. Arbitration is in contrast a consensual, private affair between the particular parties to a particular arbitration agreement. The resulting inability to enforce the solutions of joinder of parties or proceedings in arbitration, or to try connected arbitrations together other than by consent, is wellrecognised — though the popularity of arbitration may indicate that this inability is not often inconvenient or that perceived advantages of arbitration, including confidentiality and privacy are seen as outweighing any inconvenience. Different arbitrations on closely inter-linked issues may as a result lead to different results, even where, as in the present case, the evidence before one tribunal is very largely the same as that before the other. The arbitrators in each arbitration are appointed to decide the disputes in that arbitration between the particular parties to that arbitration. The privacy and confidentiality attaching to arbitration underline this; and, even if they do not lead to nonparties remaining ignorant of an earlier arbitration award, they are calculated to lead to difficulties in obtaining access, and about the scope of any access, to material relating to that award.
- The conclusion that I would reach is that Mr Hunter’s suggested principle has no sound basis, and that the dicta of Saville J in Moudreas cannot be regarded as reflecting or as based on any general principle of law in the arbitral context to which they were directed.”
- Lord Justice Longmore also identified a number of difficulties with Mr Justice Saville’s dictum. These included that a stranger to the arbitration may not in practice be able to produce a private and confidential award, and that there was a lack of mutuality if a party to the arbitration was bound but a stranger was not. He concluded:
“84. All the above is not to deny that there may be cases in which an award can be evidence in subsequent proceedings even though it will not necessarily be conclusive evidence. It may, to use Rix LJ’s expression in Drake Insurance Plc v Provident Insurance Plc  EWCA Civ 1834, be a ‘fact in the world’. A good example of this is to be found in The Sargasso  1 Lloyds Rep. 412 where a charterer had been held liable by an award in favour of a sub-charterer who had sued to recover damages for damage to cargo. The charterer then sued the shipowner and proved breach of contract; the measure of damages to which he was entitled was governed by the award pursuant to which he had been held liable to the sub-charterer. It quantified the loss which he had actually suffered; he was entitled to put it in evidence for that purpose and say he should be able to recover not less than the amount of the award; the shipowner would also be entitled to say that the charterer should not recover more than the amount of [the] award. That would not have prevented the shipowner from arguing that the charterer had not taken the right points and that he had thus failed to mitigate his damages or, indeed, that the award against him had been made by reason of some fact which was not a breach of contract on the owners’ part.
- In The Sargasso Clarke J referred to the observations of Saville J in the Moundreas case and in that context they are uncontroversial. But I do not consider that they form a safe basis on which to found any extension of the existing law of issue estoppel, and they should not be followed in future for that purpose.”
- Lord Justice Jacob reached the same conclusion:
“86. I agree with both judgments. It is worth standing back from the detail. What Lincoln seek to do is to rely upon a nonoperative (in the sense that no actual consequences flow from it), opinion expressed by the Cigna arbitrators. The opinion is in its nature private. Moreover it was unappealable. Lincoln seek more than just to rely upon the opinion —they say it is conclusive for all purposes and so conclusive in the later arbitration.
- I think such a result would be obviously wrong for the following reasons:
(a) An arbitration is an essentially private matter between the parties to it. Only some consequence of an award (e.g. that A should pay B money) can go further and extend beyond the privacy of the arbitration itself — so as to become a ‘fact in the world.’ (Rix LJ’s phrase).
(b) Because the determination of arbitrators is itself a private matter it is in its nature not intended to be available to third parties for any purpose. A third party’s rights against one of the parties to an earlier arbitration cannot depend on the happenstance of the availability of the details of that arbitration in a later arbitration involving that third party. In this connection I note that the position may be different if the earlier decision is that of a court. In particular a decision of a court as to the construction of a contract is a matter of law — with the consequence that the further principle of judicial precedent on such a question may come into play. Judgment Approved by the court for handing down.
- Where a party seeks to re-litigate in subsequent proceedings against Y a point he fought fully in earlier proceedings against X, it may be that, notwithstanding a lack of mutuality, he can be prevented from doing so on the grounds of abuse of process. As to that I express no concluded opinion for, for the reasons given by Mance LJ, there is no question of abuse of process here.”
- Mr Houseman sought to distinguish Sun Life v Lincoln on various grounds. He pointed out that it was the claimants who had introduced the arbitrators’ award into the present proceedings, referring to it in their pleadings and obtaining permission to refer to it for the purpose of obtaining a worldwide freezing order, thereby removing any difficulty arising out of the confidentiality of the arbitration. He submitted that the element of mutuality was present in this case, because the arbitrators’ decision on rescission was binding on the appellants as well as the claimants. This was the apparently tactical concession, to which I have referred, on which I prefer to express no concluded view. He submitted that the problem that strangers to the contract cannot be joined in an arbitration, to which both Lord Justice Mance and Lord Justice Longmore referred, did not arise in an arbitration under the LCIA Rules where the arbitrators have a power to order joinder if the stranger consents to be joined.
- I would accept that some of the reasons given in the judgments in Sun Life v Lincoln do not apply with the same force, or at all, on the facts of the present case. I accept also that we are not bound by this decision. Nevertheless, it contains a clear and considered statement of principle, with which I agree. That principle, founded on the consensual nature of arbitration, is that save for limited purposes not applicable here an award between A and B has no binding effect in proceedings between A and C. The consensual nature of arbitration explains also why the analogy with a decree of divorce on which Mr Houseman relied is not valid. A decree of divorce, made in court, affects the status of the divorcing parties against all the world and may affect third parties, for example because of its effect on inheritance rights. Rescission is a purely contractual matter. Abuse of process
- The second way in which Mr Houseman puts his case is that it is an abuse of process for Vale to seek to rely on the arbitrators’ rescission of the joint venture agreement without also accepting the burden of their decision that it has no restitutionary claim against BSGR. The first difficulty with this way of putting the case is that no point on abuse of process was taken before the judge and no such argument is advanced in the appellants’ notice. Accordingly the appellants would need permission to amend their appellants’ notice to advance such an argument in this court. They have made no such application. Nevertheless there is a more fundamental difficulty, which I consider we ought to address because Mr Houseman indicated that an application to dismiss the claim on abuse of process grounds may be made in future.
- The applicable principles were summarised by Lord Justice Simon (with whom Lord Justice Patten and Lord Justice Ryder agreed) in Michael Wilson & Partners Ltd v Sinclair  EWCA Civ 3,  1 WLR 2646:
“48. The following themes emerge from these cases that are relevant to the present appeal.
(1) In cases where there is no res judicata or issue estoppel, the power to strike out a claim for abuse of process is founded on two interests: the private interest of a party not to be vexed twice for the same reason and the public interest of the state in not having issues repeatedly litigated; see Lord Diplock in Hunter’s case  AC 529, Lord Hoffmann in the Arthur J S Hall case  1 AC 615 and Lord Bingham in Johnson v Gore Wood & Co  2 AC 1. These interests reflect unfairness to a party on the one hand, and the risk of the administration of public justice being brought into disrepute on the other, see again Lord Diplock in Hunter’s case. Both or either interest may be engaged.
(2) An abuse may occur where it is sought to bring new proceedings in relation to issues that have been decided in prior proceedings. However, there is no prima facie assumption that such proceedings amount to an abuse, see Bragg v. Oceanus  2 Lloyd’s Rep 132; and the court’s power is only used where justice and public policy demand it, see Lord Hoffmann in the Arthur J S Hall case.
(3) To determine whether proceedings are abusive the court must engage in a close ‘merits based’ analysis of the facts. This will take into account the private and public interests involved, and will focus on the crucial question: whether in all the circumstances a party is abusing or misusing the court’s process, see Lord Bingham in Johnson v Gore Wood and Buxton LJ in Laing v Taylor Walton  PNLR 11.
(4) In carrying out this analysis, it will be necessary to have in mind that: (a) the fact that the parties may not have been the same in the two proceedings is not dispositive, since the circumstances may be such as to bring the case within ‘the spirit of the rules’, see Lord Hoffmann in the Arthur J S Hall case; thus (b) it may be an abuse of process, where the parties in the later civil proceedings were neither parties nor their privies in the earlier proceedings, if it would be manifestly unfair to a party in the later proceedings that the same issues should be relitigated, see Sir Andrew Morritt V-C in the Bairstow case  Ch 1; or, as Lord Hobhouse put it in the Arthur J S Hall case, if there is an element of vexation in the use of litigation for an improper purpose.
(5) It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process, see Lord Hobhouse in In re Norris.”
- Lord Justice Simon added at  that “there are good reasons why a court should be cautious before accepting that later court proceedings are an abuse of its process because it involves a collateral attack on an earlier arbitration award” and at  that, while accepting the possibility in principle, “it will probably be a rare case, and perhaps a very rare case, where court proceedings against a non-party to an arbitration can be said to be an abuse of process”.
- I agree with Ms Tolaney’s written submissions on this point that in the present case there is no viable basis on which to allege that the present proceedings are an abuse of process. There is no question here of the claimants making any collateral attack on the award. On the contrary they seek to establish that its factual findings as to the existence of the fraud are correct, that the joint venture agreement was validly rescinded, and that the basis on which the arbitrators awarded damages (namely that the Initial Consideration represented a loss suffered by Vale) was also correct notwithstanding the arbitrators’ contradictory reasoning on this point when they dealt with the restitutionary claim. Moreover, for the purpose of any argument about abuse of process it must be assumed that the appellants have received some or all of the Initial Consideration with (at least) notice of the fraud. In those circumstances any submission that the claimants are guilty of an abuse of process by bringing their claims in these proceedings is farfetched. A “close ‘merits based’ analysis of the facts” can yield only one answer.
- The conclusions which I have read so far mean that it is open to Vale to seek to prove its proprietary claim against the appellants in these proceedings and that the award does not afford the appellants any defence. This means that it will be open to Vale to demonstrate, if it can, and if it needs to in order to make good its proprietary claim against the appellants, that contrary to the arbitrators’ view it did have a valid personal claim in restitution against BSGR.
- It means also that the question whether the beneficiary of any rescission trust is Vale or Vale International need not be decided at this stage or, perhaps, at all. The judge considered that this question was a novel question of law which was better decided, if it arose, at trial on the basis of full findings of fact. That is a case management decision with which this court should not lightly interfere but, in any event, I agree with the judge’s view.
- I would dismiss the appeal. The LCIA award does not afford the appellants any defence to the proprietary claim made against them. Lord
- I agree.
Lord Justice Bean:
- I also agree.
|UNITED STATES DISTRICT COURT
Chongqing Loncin Engine Parts v New Monarch Machine Tool, No. 5:21-cv-00084 (N.D.N.Y. 3 August 2021).
|FILE NUMBER:||No. 5:21-cv-00084|
|JUDGE(S):||DAVID N. HURD United States District Judge|
|REGISTRY:||NORTHERN DISTRICT OF NEW YORK|
|DATE OF HEARING:||–|
|DATE OF JUDGMENT:||3 August 2021|
|CASE MAY BE CITED AS:||Chongqing Loncin Engine Parts v New Monarch Machine Tool, No. 5:21-cv-00084 (N.D.N.Y. Aug. 3, 2021).|
|MEDIUM NEUTRAL CITATION:||5:21-cv-00084-DNH-TWD|
|DIVISION:||UNITED STATES DISTRICT COURT|
|PARTIES:||CHONGQING LONCIN ENGINE PARTS CO., LTD. (also known as Chongqing Lightweight Automotive Components Co. Ltd.),
NANJING LONCIN NEMAK PRECISION MACHINERY CO. LTD., Plaintiffs,
NEW MONARCH MACHINE TOOL, INC., Defendant.
|REPRESENTATION:||REN RONG PAN ATTORNEY AT LAW of REN RONG PAN, ESQ.
Attorneys for Plaintiffs
45 Division Street, 2nd Floor
New York, NY 10002
HANCOCK ESTABROOK, LLP of ANNELIESE ALIASSO, ESQ.
Attorneys for Defendant
1800 AXA Tower I
100 Madison Street
Syracuse, NY 13202
DAVID N. HURD United States District Judge
MEMORANDUM-DECISION and ORDER
On January 14, 2021, petitioners Chongqing Loncin Engine Parts Co., Ltd. (“Chongqing”) and Nanjing Loncin Nemak Precision Machinery Co., Ltd. (“Nanjing”), two Chinese engine parts manufacturers, filed this action under the Federal Arbitration Act (“FAA”) and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) seeking to confirm an arbitration award they received from the China International Economic & Trade Arbitration Committee (“CIETAC”) against respondent New Monarch Machine Tool, Inc. (“New Monarch” or “respondent”), an American tool manufacturer based in Cortland, New York.1 The petition has been fully briefed and will be considered on the basis of the submissions without oral argument.
Chongqing and Nanjing (collectively “petitioners”) are two Chinese companies that purchase and import machine tools used in the manufacture of automobile engines and other machine parts. New Monarch is an
1 Petitioners initially laid venue in the Southern District of New York. However, on January 19, 2021, U.S. District Judge Gregory H. Woods issued an order to show cause why the matter should not be transferred to the Northern District of New York in light of the petition’s allegation that respondent was “located” in Cortland County. See Dkt. No. 15. After petitioners consented, the case was transferred to this judicial district pursuant to 28 U.S.C. § 1406(a). Dkt. No. 16. 2 The background is taken from the petition and attached exhibits.
company that manufactures and exports machine tools to international customers in China and elsewhere.
As relevant here, in late 2013 and early 2014 the parties entered into three sales contracts (No. DLBJ130018, No. DLBJ130019, and No. DLBJ140010) in which New Monarch agreed to supply and install certain CNC boring machines at petitioners’ manufacturing facilities in China. Each sales contracts contained an arbitration clause:
“All disputes in connection with this Contract or the execution thereof shall be settled friendly through negotiation. In case no settlement can be reached, the case may then be submitted for arbitration to the International Economic and Trade Arbitration Committee of the People’s Republic of China in accordance with its rules and procedures. The arbitration shall take place in Beijing, China. The Chinese laws shall be applied in arbitration. The decision of the Arbitration Committee shall be final and binding upon both parties. Neither party shall seek recourse to a law court or other authorities to appeal for revision of the decision. Arbitration fee shall be borne by the losing party. During the course of the arbitration proceedings, the provisions of this Contract shall not be affected thereby except for the portion of this Contract under the arbitration and this Contract shall continuously be performed.”
On August 16, 2016, petitioners claimed that New Monarch had materially breached its obligations under the sales contracts by, inter alia, defaulting on the delivery and installation of the agreed-upon machines. Petitioners declared that the three sales contracts were therefore terminated under the United Nations Convention on Contracts for the International Sale of Goods (“CISG”).
On September 13, 2016, in accordance with the arbitration clause written into each sales contract, petitioners applied for arbitration to CIETAC, an arbitration institution headquartered in Beijing, China.3 Although CIETAC initially opened three separate arbitration cases (one for each sales contract), the Arbitration Tribunal (the “Arbitration Panel”) later consolidated and merged them into a single arbitration proceeding.
On April 19, 2017 and October 27, 2017, the Arbitration Panel held hearings on the various procedural and substantive disputes between the parties. Ultimately, the Panel found that petitioners had rightfully terminated the three sales contracts with New Monarch because of serious quality problems with the goods in question.
On June 28, 2018, the Arbitration Panel rendered an Arbitral Award (the “Arbitral Award”) in favor of petitioners in the amount of $2,407,385.00 plus interest payable within thirty days. New Monarch did not pay the Award. This petition followed.
3 Initially established by the People’s Republic of China in 1954, CIETAC “operates independently of the Chinese government, with CIETAC arbitrators having the power to issue awards that Chinese law will recognize as ‘final and binding.’” In Re Guo, 965 F.3d 96, 100–101 (2d Cir. 2020).
III. LEGAL STANDARD
“The FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). “[T]he purpose behind its passage was to ensure judicial enforcement of privately made agreements to arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). Consequently, the Act creates a “strong presumption in favor of enforcing arbitration awards.” Wall Street Assocs., L.P. v. Becker Paribas Inc., 27 F.3d 845, 849 (2d Cir. 1994).
To effectuate its purpose, the FAA also “provides for expedited judicial review to confirm, vacate, or modify arbitration awards.” Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 578 (2008). However, courts have an “extremely limited” role in reviewing such awards. Landau v. Eisenberg, 922 F.3d 495, 498 (2d Cir. 2019). “Indeed, confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.” Salus Cap. Partners, LLC v. Moser, 289 F. Supp. 3d 468, 476 (S.D.N.Y. 2018) (cleaned up).
Importantly, though, the Act does not “independently confer subject matter jurisdiction on the federal courts.” Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Ins. Co., 668 F.3d 60, 71 (2d Cir. 2012) (cleaned up). Instead, “there must be an independent basis of jurisdiction before a district court may entertain petitions to confirm or vacate an award Case 5:21-cv-00084-DNH-TWD Document 33 Filed 08/03/21 Page 5 of 16 – 6 – under the FAA.” Id. As relevant here, the New York Convention governs the enforcement of arbitral awards stemming from disputes that are “commercial and . . . not entirely between citizens of the United States.” Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 391 (2d Cir. 2011) (citation omitted).
“Congress implemented the New York Convention by enacting Chapter 2 of the Federal Arbitration Act.” Goel v. Ramachandran, 823 F. Supp. 2d 206, 210 (S.D.N.Y. 2011). Under Section 207 of the Act, any party may, “[w]ithin three years after an arbitral award . . . is made, . . . apply to any court having jurisdiction . . . for an order confirming the award.” 9 U.S.C. § 207.
Petitioners contend that they are entitled to an order confirming the Arbitral Award because they have satisfied all of their obligations under the FAA and the New York Convention. See Pets.’ Mem., Dkt. No. 13.4 In opposition, New Monarch offers three reasons why the Award should not be confirmed: (1) the arbitration was not conducted in accordance with CIETAC’s own procedures and rules; (2) the Award is against the public policy of the United States; and/or (3) the Award includes attorney’s fees, which are outside the scope of the parties’ arbitration agreements. Resp’t Mem., Dkt. No. 29 at 6–11.
4 Pagination corresponds to CM/ECF.
Case 5:21-cv-00084-DNH-TWD Document 33 Filed 08/03/21 Page 6 of 16 – 7 – “When a party applies to confirm an arbitral award under the New York Convention, ‘[t]he court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.’” Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 90 (2d Cir. 2005) (quoting 9 U.S.C. § 207).5 Under Article V of the Convention, the grounds for refusing to recognize or enforce a foreign arbitral award are:
(1)(a) The parties to the agreement were under some incapacity, or the agreement is not valid under the law;
(1)(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
(1)(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
(1)(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such an agreement, was not in accordance with the law of the country where the arbitration took place;
5 “The party seeking enforcement need only submit an authentic copy of the award, the agreement to arbitrate and, if the award is in a language other than English, a duly certified translation.” Jiangsu Changlong Chems., Co., Inc. v. Burlington Bio-Med. & Sci. Corp., 399 F. Supp. 2d 165, 168 (E.D.N.Y. 2005).
(1)(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made;
(2)(a) The subject matter of the difference is not capable of settlement by arbitration under the law of the country where recognition and enforcement is sought; or
(2)(b) The recognition or enforcement of the award would be contrary to the public policy of the country in which enforcement or recognition is sought.
See Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, (2d Cir. 1997). “[T]he party opposing enforcement of an arbitral award has the burden to prove that one of the seven defenses under the New York Convention applies.” Zeiler v. Deitsch, 500 F.3d 157, 164 (2d Cir. 2007) (cleaned up). “The burden is a heavy one, as the showing required to avoid summary confirmance is high.” Id.
- CIETAC’s Rules and Procedures
First, New Monarch contends that the Arbitral Award should not be confirmed because the Arbitration Panel failed to follow CIETAC’s rules and procedures. Resp’t Mem. at 6–7. As respondent explains, the Panel took well over a year to render a decision even though CIETAC’s arbitration rules impose a six-month deadline. Id. at 6.
Upon review, this timeliness argument must be rejected. “Under Article V(1)(d) [of the New York Convention], [r]espondent must show that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.” BSH Hausgeräte GmbH v. Kamhi, 291 F. Supp. 3d 437, 443 (S.D.N.Y. 2018) (cleaned up).
The “arbitration proceedings of this case [were] governed by the Arbitration Rules of the Arbitration Commission effective as of January 1st, 2015.” Ex. D to Pet., Dkt. No. 8-5 at 10. Article 48 of these Rules require a CIETAC arbitration panel to render an award within six months unless the tribunal receives permission from the President of the Arbitration Court to extend the deadline. Ex. 1 to Ping Yu Decl., Dkt. No. 29-9 at 25. Contrary to New Monarch’s argument, the Arbitration Panel appears to have complied with this Rule. The certified English translation of the Arbitral Award explicitly states that the Panel sought and received permission to extend the deadline from the President of the Arbitration Court. Ex. D to Pet., Dkt. No. 8-5 at 12 (“To meet the needs of the ongoing proceedings, upon application by the arbitration tribunal, the president of the court of arbitration agreed and decided to extend the time deadline for making a verdict on the case to June 28th, 2018.”).
In short, New Monarch has not shown that the “the arbitral procedure was not in accordance with the agreement of the parties” and therefore has not carried its “heavy” burden of proving that the Article V(1)(d) defense applies. Accordingly, this argument must be rejected.
- Public Policy
Second, New Monarch contends that the Arbitral Award should not be confirmed because the Arbitration Panel’s long delay in rendering a decision “is against the public policy of the United States calling for just and expeditious resolution of disputes.” Resp’t Mem. at 8–10.
New Monarch’s public policy argument is actually two-fold: that the one-year period between the final hearing (on October 27, 2017) and the Arbitration Panel’s entry of a final Award (on June 28, 2018) took too long and that, during this long delay, U.S.–Chinese trade relations deteriorated, making it “impossible for an American company like New Monarch to get a fair shake before the Chinese-based CIETAC.” Resp’t Mem. at 8–9.
Upon review, this argument will also be rejected. “Article V(2)(b) [of the New York Convention] allows a court to refuse enforcement of an arbitration award where enforcement would violate the forum state’s public policy.” Yukos Cap. S.A.R.L. v. Samaraneftegaz, 592 F. App’x 8, 11 (2d Cir. 2014) (summary order). However, the public policy defense in Article V(2)(b) must be “construed very narrowly to encompass only those circumstances where enforcement would violate our most basic notions of morality and justice.” Telenor Mobile Commcn’s AS v. Storm LLC, 584 F.3d 396, 411 (2d Cir. 2009) (cleaned up).
As an initial matter, the Second Circuit has explicitly recognized that CIETAC is an organization that “operates independently of the Chinese government.” In Re Guo, 965 F.3d at 101. But even assuming CIETAC was in some way affiliated with the Chinese government, this argument boils down to an assertion that the confirmation of a foreign arbitral award somehow hinges on the current state of trade relations between signatories to the New York Convention.
That is not the law. “The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.” Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974).
In sum, New Monarch has not shown that confirming a monetary arbitral award won by a foreign party in a contract dispute over the delivery of commercial goods would “be directly at odds with a well[-]defined and dominant [American] public policy resting on clear law and legal precedent.” St. Mary Home, Inc. v. Serv. Emps. Int’l Union, Dist. 1199, 116 F.3d 41, 46 (2d Cir. 1997). Accordingly, this argument will be rejected.
- The Panel’s Award of Attorney’s Fees
Third, New Monarch contends that the Arbitral Award should not be confirmed because it improperly includes an award of attorney’s fees. Resp’t Mem. at 10–11. According to respondent, the contractual arbitration clause in each of the three sales contracts “does not provide for an award of attorney’s fees and costs in excess of the arbitration fee.” Id. at 10.
Upon review, this argument must be rejected. The arbitration clause in each sales contract states that the “[a]rbitration fee shall be borne by the losing party.” According to New Monarch, this quoted language “does not provide for an award of attorney’s fees and costs in excess of the arbitration fee.” Resp’t Mem. at 10.
But New Monarch’s assertion is begging the question. It relies on the implicit premise that the definition of “arbitration fee” necessarily excludes attorney’s fees or other costs associated with the arbitration. And that might be true, but the burden of establishing a defense invoked under Article V of the New York Convention lies with the respondent. Respondent not pointed to a clear definition of this contract term—whether in the sales contracts, the rules and procedures governing CIETAC arbitration, or Chinese law—that would support its desired conclusion.
Equally problematic for this argument is the fact that the rules and procedures governing the arbitration appear to explicitly permit the tribunal to award attorney’s fees. As relevant here, Article 52 of CIETAC’s Arbitration Rules empower the Arbitration Panel to:
“decide in the arbitral award, having regard to the circumstances of the case, that the losing party shall compensate the winning party for the expenses reasonably incurred by it in pursuing the case. In deciding whether or not the winning party’s expenses incurred in pursuing the case are reasonably, the arbitral tribunal shall take into consideration various factors such as the outcome and complexity of the case, the workload of the winning party and/or its representative(s), the amount in dispute, etc.
Ex. 1 to Ping Yu Decl., Dkt. No. 29-9 at 27.
This language allocates authority to the Arbitration Panel to award attorney’s fees in an appropriate case. New Monarch has not pointed to any clear basis on which to conclude that the parties (in the sales contracts or elsewhere) intended to limit the authority that is otherwise conferred on the Panel by these Arbitration Rules. Cf. In re Arb. Between Gen. Sec. Nat. Ins. Co. & AequiCap Program Adm’rs, 785 F. Supp. 2d 411, 419 (S.D.N.Y. 2011) (rejecting similar argument where parties “used expansive language”). Thus, especially in light of the substantial deference owed to foreign arbitration awards, this argument must also be rejected.
Remaining Matters In addition to confirmation of the Arbitral Award, the verified petition also requests (1) the entry of pre-judgment interest running from July 27, 2018 and (2) an award of attorney’s fees related to the additional costs of bringing this confirmation proceeding in federal court. Dkt. No. 8 at 6.
Upon review, petitioner’s request for pre-judgment interest will be denied. There is a general presumption in favor post-award, pre-judgment interest. In re Arb. Between Westchester Fire Ins. Co. v. Massamont Ins. Agency, Inc., 420 F. Supp. 2d 223, 226 (S.D.N.Y. 2005). However, such an award is only appropriate if it would be “fair, equitable and necessary to compensate the wronged party.” Wickham Contracting Co. v. Local Union No. 3, Int’l Brotherhood of Elec. Workers, AFL-CIO, 955 F.2d 831, 835 (2d Cir. 1992).
Petitioners have failed to identify any provision of the Arbitration Panel’s Award that would support the entry of pre-judgment interest. Cf. Oracle Co. v. Wilson, 276 F. Supp. 3d 22, 34 (S.D.N.Y. 2017) (“[C]ourts in this Circuit have found that a district court may not provide prejudgment interest if the Arbitrator’s award is silent on such interest.”). Nor have they indicated the rate of interest they seek, or explained why that rate would be appropriate under the governing law. In short, because petitioners have failed to establish that an award of pre-judgment interest in this case would be “fair, equitable and necessary,” the request will be denied.
Petitioners’ request for additional attorney’s fees will also be denied. “The FAA does not provide for an award of attorney’s fees and expenses for arbitration- confirmation proceedings, but a court remains authorized to enter such an award pursuant to its inherent equitable powers.” Seneca Nation of Indians v. New York, 420 F. Supp. 3d 89, 106 (W.D.N.Y. 2019) (cleaned up). “In the arbitration context, the guiding principle has been stated as follows: when a challenger refuses to abide by an arbitrator’s decision without justification, attorney’s fees and costs may properly be awarded.” Id.
Upon review, that standard has not been met. Cf. Seneca Nation of Indians, 420 F. Supp. 3d at 106 (“Such awards may be made, for example, when a party pursues a frivolous course.”). Even assuming otherwise, petitioners have failed to substantiate their request with contemporaneous time records or other supporting documentation. Accordingly, the request for attorney’s fees will also be denied.
Petitioners’ motion to confirm the Award will be granted. However, petitioners’ requests for pre-judgment interest and for attorney’s fees incurred in bringing this confirmation action will be denied.
Therefore, it is ORDERED that
- The Arbitral Award is CONFIRMED; and
- Judgment shall be entered in the amount of $2,407,385.00.6
The Clerk is directed to enter a judgment accordingly and close the file.
IT IS SO ORDERED.
Dated: August 3, 2021 Utica, New York.
6 Post-judgment interest shall accrue on the full amount of the judgment in accordance with 28 U.S.C. § 1961(a) because “[t]he award of post-judgment interest is mandatory on awards in civil cases as of the date judgment is entered.” Lewis v. Whelan, 99 F.3d 542, 545 (2d Cir. 1996).