This article was featured in Jus Mundi‘s 2023 Arbitration Year in Review, in collaboration with VYAPs, a yearly collection of articles from jurisdictions all around the globe updating you on arbitration-related developments from the previous year.
THE AUTHORS:
Micha Schwartzshtein, Lawyer at Clifford Chance
Joshua Banks, Associate at Clifford Chance
This article provides an overview of arbitration developments in Australia in 2023. Specifically, the article discusses recent Australian court judgments from 2023 relating to sovereign State immunity and the enforcement of arbitral awards, challenges to the jurisdiction of an arbitral tribunal, and the rights of third parties. Notably, these decisions confirm that among other things:
- A State’s agreement to Arts 53–55 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (”ICSID Convention”) amounts to a waiver of foreign State immunity when seeking to recognize and enforce an ICSID award;
- If a State agrees to the terms of the New York Convention (1958), this carries a necessary implication that it has waived its foreign State immunity from recognition and enforcement of an arbitral award; and
- In certain circumstances, a third party can exercise the rights conferred on a party to an arbitration agreement.
Sovereign State Immunity
Waiver of Sovereign Immunity by Agreement
Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11
A foreign State’s ability to waive its sovereign State immunity by agreeing to arbitrate under the ICSID Convention has become a topical issue folMicha Schwartzshtein Lawyer Clifford Chance Joshua Banks Associate Clifford Chance RETURN TO TABLE OF CONTENTS 11 ARBITRATION YEAR IN REVIEW – 2023 lowing the recent Australian High Court judgment in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11 in April 2023. In its judgment, the High Court held that under section 10 of the Foreign States Immunities Act 1985 (Cth) (the FSI Act), Spain’s accession to the ICSID Convention, and concomitant agreement to Arts 53-55 of the ICSID Convention constituted a waiver of Spain’s immunity from the jurisdiction of Australian courts concerning the recognition and enforcement of a binding ICSID award.
Notably, however, this conclusion had no bearing on Spain’s foreign State immunity from the jurisdiction of Australian courts regarding the award’s execution.
Overall, this decision illustrates the pro-arbitration stance of Australian courts, particularly in relation to the recognition and enforcement of ICSID awards. The decision also indicates that, while a sovereign State may be taken to have waived its immunity from the jurisdiction of Australian courts to recognize and enforce an arbitral award by agreeing to arbitrate, any sovereign State immunity from execution will remain left to be determined under the domestic law of the arbitral debtor’s Contracting State.
CCDM Holdings, LLC v Republic of India (No 3) [2023] FCA 1266
In CCDM Holdings, LLC v Republic of India (No 3) [2023] FCA 1266, the Federal Court of Australia held that India had waived its sovereign immunity in relation to the recognition and enforcement of the arbitral award by Australian courts. This was because India had acceded to the New York Convention; and the relevant arbitral creditors had tendered a copy of an arbitral award against India alongside a prima facie arbitration agreement. This signified that India had submitted to the jurisdiction of Australian courts “by agreement” pursuant to the FSI Act. Given that India was a party to the arbitral award, the Court reasoned that this gave rise to an “obvious and necessary implication that India (was) requiring Australia to recognise and enforce that award”.
Notably, this decision is a testament to Australia’s reputation as an enforcement-friendly, pro-arbitration jurisdiction. The decision also affirms that if a State agrees to the terms of the New York Convention, this carries a necessary implication that it has waived its foreign State immunity from recognition and enforcement of an arbitral award.
Separate Entities of Foreign States
Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd [2023] NSWCA 134
Another topical legal issue that has recently arisen in Australia is whether a ‘separate entity’ of a foreign State can claim sovereign immunity under the FSI Act. This issue was considered by the NSW Court of Appeal in Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd [2023] NSWCA 134. In that case, the Respondent was Indonesia’s national airline. The Appellant challenged the Respondent’s immunity from winding up proceedings in Australia by relying on section 14(3)(a) of the FSI Act, which provides that: “[a] foreign State is not immune in a proceeding in so far as the proceeding concerns:(a) bankruptcy, insolvency or the winding up of a body corporate.”
The Court ultimately found that section 14(3)(a) of the FSI Act does not suscept a foreign State (or a separate entity of a foreign State) to winding up proceedings in Australia. The Court reasoned that “the body corporate being referred to in s 14(3)(a)…. should be understood and interpreted as referring to a body corporate ’in and of the Commonwealth‘”. The Court found that there was nothing to suggest that the legislature intended, by the FSI Act, to render a foreign State and its separate entities susceptible to winding up or bankruptcy proceedings against them in Australian courts.
This decision is useful as it clarifies the intended scope of the exception to sovereign immunity contained within section 14(3)(a) of the FSI Act. Notably, on 19 October 2023, the High Court of Australia approved the Applicant’s special leave application to appeal this decision. As such, the High Court will consider this case in 2024.
Bifurcation and the Jurisdiction of an Arbitral Tribunal
CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2023] WASCA 1
In the case of CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2023] WASCA 1, the Western Australian Court of Appeal considered the circumstances in which an award can be set aside on the basis that the tribunal was rendered functus officio concerning the issues it purported to decide. In that case, the Respondent applied to set aside the award under section 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA).
In an earlier arbitration, the tribunal had ordered the bifurcation of proceedings between liability and quantum issues. Following the publication of the first interim award (rendered in favour of the Respondent), the tribunal ordered (among other things) the Claimant to re-plead some of its cases. The Respondent objected to the amended pleading on the grounds that it effectively amounted to the Claimant pleading a new case on liability. Given that the tribunal had already made findings in the first interim award, which were inconsistent with the Claimant’s amended case, the Respondent argued that the tribunal was effectively acting functus officio.
The Western Australian Court of Appeal upheld the lower court decision in Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323 to set aside the second interim award on the basis that its contents went beyond the scope of the tribunal’s jurisdiction. The Court found that issuing the first interim award rendered the tribunal functus officio on all liability issues. Nothing in the first interim award indicated that the tribunal reserved additional liability issues for subsequent consideration.
This case illustrates how the bifurcation of issues can, in some instances, enliven the operation of the functus officio doctrine. The decision also promotes the finality of arbitration. On 17 November 2023, the High Court of Australia approved the Applicant’s special leave application to appeal this decision. As such, this case will be considered by the High Court in 2024.
Rights of Third Parties
King River Digital Assets Opportunities SPC v Salerno [2023] NSWSC 510
In the decision of King River Digital Assets Opportunities SPC v Salerno [2023] NSWSC 510, the Supreme Court of New South Wales considered the circumstances in which a third party could exercise the rights of a party to an arbitration agreement, specifically the ability to seek a stay of court proceedings under section 8 of the Commercial Arbitration Act 2010 (QLD) (CAA).
The relevant third party (Mr. Salerno) had sought a stay of court proceedings in favour of arbitration pursuant to the arbitration clause contained in a pre-existing arbitration agreement to which it was not a party.
The Court was satisfied that Mr. Salerno was a ”person claiming through or under a party to the arbitration agreement”. This was because the defences raised by Mr. Salerno turned on claims and defences ordinarily only exercisable by a party to the arbitration agreement. In that respect, the Court observed that “although Mr Salerno is not a party to the arbitration agreement in the Master Purchase Agreement, he will be defending these proceedings “through or under” a party to the arbitration agreement”. On that basis, the Court held that Mr. Salerno was a “party” within the extended definition of “party” in section 2 of the CAA. The Court was also satisfied that the relevant matter was ”a matter which is the subject of an arbitration agreement” and that the arbitration agreement was not “inoperative”. As such, the Court determined that Mr. Salerno could seek a mandatory stay of the proceedings under section 8 of the CAA.
This decision affirms that a third party can exercise the rights corresponding to a party to an arbitration agreement, such as the ability to seek a stay of court proceedings, upon satisfaction of the requirements contained within section 8 of the CAA.
ABOUT THE AUTHORS:
Micha Schwartzshtein is a lawyer at Clifford Chance, based in Perth, Australia. In this role, she is presently working in the areas of international arbitration and commercial litigation. She has previously worked as a legal assistant to the former Chief Justice of Victoria, the Honourable Marilyn Warren AC KC, and to Dr Gavan Griffith AO KC, a leading international arbitrator. In 2022, Micha undertook an international arbitration internship in Hong Kong at a global law firm. She also assisted with the publication of an arbitration textbook titled ‘International and Australian Commercial Arbitration’. Micha holds a Bachelor of Laws (Honours) from Monash University, and is a co-founder of AUS VYAP, the first VYAP in Oceania.
Joshua Banks is an Associate in the International Arbitration Group at Clifford Chance, based in Perth, Australia. His practice is focused on investor-state arbitration and disputes in the energy and resources sector. Joshua has worked on arbitration proceedings under ICSID, ICC, SIAC, UNCITRAL, and LCIA arbitration rules, concerning projects across Asia-Pacific and Africa. Joshua is a co-founder of AUS VYAP.
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