Australia: Hub Street appeal – What does it mean for arbitration in Australia?

We previously covered the decision of the Federal Court in Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116.

Readers will recall that the decision involved an application for the enforcement in Australia of an arbitration award published in Qatar according to the Commonwealth International Arbitration Act 1974 (Cth) (IAA). By virtue of Australia's adoption of the United Nations Conference on International Commercial Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the New York Convention), and adoption (at state and federal level) of the UNCITRAL Model Law, Australia is considered a ‘pro-arbitration' country so it was perhaps to be expected that enforcement might be granted, notwithstanding some significant departures in the conduct of the arbitration in Qatar.

But just how ‘pro' arbitration are we? The Full Court of the Federal Court has now reversed the decision at first instance ([2021] FCAFC 110) and declined to make orders for the enforcement of the award in the process tempering slightly the ‘pro-arbitration' stance adopted by the trial judge.

The facts

The dispute concerned a contract under which Hub agreed to provide street furniture to Energy City, a development in Qatar. Energy City paid a substantial advance to Hub and when the project did not proceed, Energy City asked for a refund. However, no refund was forthcoming and Energy City purported to refer the dispute to arbitration in Qatar, as the contract required.

While Hub did not participate in the arbitration proceedings, Energy City obtained an award in its favour which it sought to enforce in Australia.

Hub resisted enforcement, on grounds set out in the International Arbitration Act, principally concerned with the giving of notice and the failure to conduct the reference in accordance with the procedure stipulated in the contract as agreed by the parties.

Despite the procedural irregularities of which Hub complained, the Federal Court made orders for enforcement. Hub appealed.

The appeal

The arbitration agreement in the contract required (among other things):

1. the proceedings to be conducted in English
2. Energy City to give Hub 45-days' notice to appoint an arbitrator
3. Qatari law to apply.

It was common ground that Energy City did not give the 45-day notice but instead made an application to the court in Qatar for the appointment of a Tribunal according to the Qatari arbitration law. Notice of the court proceeding was given to Hub, who did not respond. The proceedings were then conducted in Arabic.

An issue of concern on the appeal was the basis for the exercise of the Qatari court's jurisdiction. It is common internationally that courts appoint an arbitrator if a party fails to do so when required.

However, in this case, Hub had not been given the requisite notice so they could not (arguably) have been said to have defaulted under the arbitration agreement.

At first instance, the judge relied on the presumption of regularity and comity, that if a court exercises jurisdiction, it should be assumed to have done so properly, unless evidence were lead (in this case, by Hub) that it had not been empowered to exercise its jurisdiction.

The Full Court disagreed, holding that it was a matter for Energy City to prove that the court's jurisdiction had been enlivened. This would be difficult in circumstances where Hub had not been given the 45-day notice, and it could not be said therefore to be in default.

The Qatari court did not, as a result, have jurisdiction to make the appointment, meaning that the Tribunal had not been constituted in accordance with the agreement of the parties.

Residual discretion

The judge, at first instance, had also found that even if the arbitration had not been conducted in accordance with the agreement of the parties, she would have exercised her discretion to allow enforcement.

The discretionary element arises from sections 8(5) and 8(7) of the International Arbitration Act, which provide that the court ‘may' (i.e. not ‘must') refuse to enforce an award if the grounds there listed are made out.

Having found that the failure to provide the 45-day notice was a crucial and fundamental failure to conduct the proceedings in accordance with the agreement of the parties, the Full Court determined that no such exercise of discretion could properly be made.

Pro-arbitration?

Perhaps the most significant observations by the Full Court related to the presumptions (if any) a court should make when enforcing arbitration obligations arising (first) under contract and (second) by virtue of the New York Convention and UNCITRAL Model Law.

The judge, at first instance, appeared to have viewed the issues through a pro-arbitration lense. When presented with an arbitration award, should one look for reasons to enforce it, or reasons not to enforce it? Who has the burden of proof and/or benefit of the doubt?

Similar considerations were canvassed by the UK Supreme Court in Dallah Real Estate and Tourism Holding Co v Ministry for Religious Affairs of the Government of Pakistan [2021] UKSC 46.

In that case, Lord Manse JSC had said:

The Full Court approved, and also approved of the joint judgment of Hansen JA and Kyrou AJA in IMC Aviation in which their honours found that there was nothing in the IAA that either expressly or implicitly provides that the onus of proof for the party resisting enforcement is anything other than the ordinary balance of probabilities.

Conclusion

The decision of the Full Court probably makes life easier for practitioners. Where there has been a fundamental and crucial departure from the procedure agreed by the parties, the presumption should be that the award will not be enforced.

The decision probably tempers somewhat the extent of the ‘pro-arbitration' policy expressed by the Australian arbitration legislation but not in a surprising way.

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