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Australian court holds that adoption of arbitration rules does not exclude the Model Law
Practical Law UK Legal Update Case Report 3-503-2004 (Approx. 4 pages)
Australian court holds that adoption of arbitration rules does not exclude the Model Law
by Practical Law
| Published on 01 Sep 2010 • Australia, International |
Andrew Robertson (Partner), Piper Alderman
In a unanimous decision, the Supreme Court of Queensland's Court of Appeal has held that parties had not excluded the UNCITRAL Model Law by selecting the UNCITRAL Arbitration Rules 1976, effectively considering the principles raised in the much debated decision of Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-Ing GmbH. While not revisiting the question of whether that case was correctly decided, the court strongly suggested that the case would not be decided in the same manner if it was before the court again.
Background
In Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-Ing GmbH (2001) 1 QdR 461 (Eisenwerk), the Supreme Court of Queensland's Court of Appeal held that by adopting the ICC Arbitration Rules, the parties had elected to contract out of the UNCITRAL Model Law. Australian arbitration practitioners have long considered that decision to be out of step, so much so that the recent amendments to the International Arbitration Act 1974 (1974 Act) have amended section 21 to effectively over-rule the decision. That Act only recently came into effect on 6 July 2010 (see Legal update, Australia advances arbitral law reform).
Facts
The issue of the status of the Eisenwerk decision was the central issue in this case before the Supreme Court of Queensland's Court of Appeal (which was argued before the amendments to the 1974 Act were made but handed down afterwards).
In this case, the parties had selected the UNCITRAL Arbitration Rules 1976 and the court was asked to consider whether the Eisenwerk principle meant that the selection of those rules meant the parties had agreed to exclude the UNCITRAL Model Law.
The relevant dispute resolution clause provided:
"8.17 — Dispute Resolution
Any dispute or difference whatsoever arising out of or in connection with this contract shall be and is hereby submitted to arbitration in accordance with and subject to the UNCITRAL Arbitration Rules. In the absence of an agreement by the parties to the appointment of an arbitrator, the appointing person shall be the National President of the Institute of Arbitrators and Mediators Australia (IAMA). The administrating body shall be the Institute of Arbitrators and Mediators Australia (IAMA). There shall be one arbitrator, the language of the arbitration shall be English, the place of the arbitration shall be Brisbane."
A dispute arose, an arbitrator was appointed and the arbitration commenced. The seat of the arbitration was Brisbane, Queensland and the law of the arbitration was the law of Queensland. The parties agreed at an early stage that they needed an authoritative and binding decision of the Court of Appeal as to the applicable supervisory law, specifically whether the UNCITRAL Model Law applied. An interim award was handed down and the parties asked a Justice of the Court to state a case for Court of Appeal on the application of the Eisenwerk principle.
Significant written submissions were put to the court by the parties, including an analysis of the material differences between the UNCITRAL Model Law and the UNCITRAL Arbitration Rules.
Decision
The court held that the Model Law applied. It did not accept there was an Eisenwerk principle per se. The role of the court was to ascertain the intention of the contracting parties by reference to the words of the contract and, normally, to the surrounding circumstances known to the parties, including the background knowledge which would reasonably have been available to the parties, and the purpose and object of the transaction. As such, identically worded contracts entered into between different parties in different circumstances could be construed differently. Although parties might rely on a decision on the construction of one contract in support of its arguments on the construction of a similarly worded contract, the precedent value of the decision relied on would be limited.
In the circumstances of the case before it, which turned on the construction of the particular words of the contract, the court held that a reasonable person with the attributes of the parties would have been aware that the UNCITRAL Arbitration Rules and the Model Law were capable of operating together. There is a wealth of commentary and other materials, including the second reading speech for the International Arbitration Bill, to that effect and the terms of the UNCITRAL Arbitration Rules and the Model Law also demonstrated this.
Therefore the court did not need to reconsider the Eisenwerk decision and declined to do so. However the court did note that:
"With the passage of time, circumstances may change so that a provision in a contract worded identically to a provision in a contract construed by a court some time before, may need to be construed differently. For example, over time, the adoption and use of the Model Law in international arbitrations is likely to have changed from something of a novelty to a common practice where the seat of the arbitration has adopted the Model Law. Perceptions of how the UNCITRAL Arbitration Rules and similar rules fit, and may be used in conjunction, with the Model Law, may also change with time. In Eisenwerk, it was found that "only 19 countries" had adopted the Model Law to February 1998. It is not disputed that over 60 countries have now adopted it."
Therefore, the court reached its conclusion by distinguishing Eisenwerk but the process of reasoning was certainly not supportive of the decision, albeit not excluding it all together.
Comment
The decision is another pro-arbitration decision from an Australian court, demonstrating a more sophisticated understanding of arbitration than the case of Eisenwerk appeared to provide. While the recent amendments of the 1974 Act mean that the precedent value of the case is of lesser importance, the greater understanding of the international context in which international arbitrations operate, including reference to Singaporean authorities and international commentary on the Model Law, should be of comfort to parties arbitrating or contemplating arbitrating in an Australian seat.