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Victorian Supreme Court enforces Mongolian award and clarifies the court's role in determining parties
Practical Law Legal Update 9-505-0028 (Approx. 4 pages)
Victorian Supreme Court enforces Mongolian award and clarifies the court's role in determining parties
| Published on 02 Mar 2011 • Australia, International |
Andrew Robertson (Partner), Piper Alderman
In two recent decisions, the Victorian Supreme Court has considered the recognition and enforcement of a Mongolian arbitral award in Australia and, in a subsequent costs decision, the Australian courts' expectation of parties in enforcement proceedings.
Facts
The decision concerned a foreign arbitral award dated 15 September 2009 issued at Ulaanbaatar City, Mongolia arising from a case determined at the Mongolian National Arbitration Centre at the Mongolian National Chamber of Commerce and Industry.
The plaintiff (P) was a Mongolian company and the first defendant (D1) a British Virgin Islands registered company with an Australian address. P and D1 had concluded a contract which included an arbitration clause. A central issue before the Supreme Court was that the award also named a second defendant (D2), an Australian company.
Both Australia and Mongolia are parties to the New York Convention.
P had been successful in arbitration and received an award against the defendants for around USD$6 million. In July 2010, P applied to have the award recognised and enforced in Australia. The enforcement application was initially heard ex parte in August 2010. The court granted an order enforcing the award. The order gave the defendants 42 days after service to apply to the court to set aside the order.
D2, but not D1, applied to set aside the order.
D2's submissions seeking to resist enforcement raised several grounds (each in the alternative):
- D2 was not a party to the arbitration agreement.
- The arbitration agreement was not valid under Queensland law.
- There was a failure to give proper notice of the arbitral proceedings.
- The award went beyond the differences to be resolved by the arbitration agreement.
- The composition of the arbitral tribunal was contrary to Mongolian law.
- The award should not be enforced on public policy grounds.
It was further argued that the ex parte application had not been made with the necessary candour required in such an application.
Decision on enforcement
The court rejected all the above submissions and subsequently made an indemnity costs order (see Decision on the issue of costs below).
Lack of candour
D2 claimed that it was not a party to the arbitration agreement. P's failure to sufficiently draw this to the court's attention was apparently what lay behind, at least in part, the submission of a lack of candour.
However, the court rejected the argument that there had been a lack of candour in relation to this issue, indicating that the issue had, in fact, been brought to its attention and in any event the ex parte process had not prejudiced the D2, which had made its application to set aside the court orders. The judge indicated that the procedure of granting ex parte enforcement of arbitration awards did not contemplate any obligation of candour such as would be associated with an ex parte injunction. Rather the judge said he had adopted a process adopted to enable arbitral awards to be quickly enforced through a quasi-administrative process.
P had provided the court with the documents required by Article IV of the New York Convention, that is, the authenticated copy of the award, the arbitration agreement and translations, and was not obliged to furnish the court with any information beyond that.
Parties to the arbitration agreement/validity of the arbitration agreement
Once P had lodged the necessary documents, the effect of the International Arbitration Act (IAA) was that the foreign award was to be enforced unless an exception, reflecting the New York Convention exceptions in Article V, was invoked by the award debtor. At this stage the award and the arbitration agreement could be examined if the inquiry was relevant to an exception under the Convention. The onus of establishing such an exception rested with D2, the award debtor.
The court held that the issue as to whether D2 was a party to the arbitration agreement should be brought before the arbitral tribunal or a competent tribunal in the country under the law of which the award was made, that is, the court with the supervisory jurisdiction over the arbitral process. The court also concluded that it was for the arbitral tribunal, subject to the supervisory court, to determine the validity of the arbitration agreement. In any event, the validity of the arbitration agreement was not governed by Queensland law.
The court also considered whether an award debtor was estopped from raising a defence to enforcement argument if it had failed, or had unsuccessfully attempted, to raise the issues before the arbitral tribunal or the supervisory court. Here the evidence was that the courts of Mongolia, a civil law country, would if asked to do so review the award and would satisfy themselves by proper inquiry that the requirement of the Mongolian civil code had been made out. The evidence was that the Mongolian courts had verified the award at P's request and D2 had not challenged the award before the Mongolian courts.
The court concluded that, with respect to the issue of the parties to the arbitration agreement, D2 had failed to discharge the onus of establishing that an exception to enforcement applied. Furthermore, D2 was estopped from raising its objections given the unchallenged arbitral award.
Other grounds
In relation to the alleged lack of notice, the dispute related to the question of whether the notice of the arbitration given to D1 was effective for D2. The court reviewed the evidence and concluded that D2 had failed to discharge the evidentiary onus of establishing lack of notice. For this reason, the public policy defence to enforcement was also rejected.
The court dismissed the argument that the award was made without jurisdiction as unmeritorious and circular, and also dismissed the argument relating to the composition of the tribunal.
Consequently, the court held that none of the defences to enforcement were established and D2's summons to set aside the earlier orders was dismissed. Costs were reserved.
Decision on the issue of costs
In a subsequent decision, the Supreme Court considered the issue of costs. It noted that the usual rule was that costs would be awarded to the successful party and taxed on a party and party basis. If there were exceptional circumstances, then the court had the power to order costs on an indemnity basis.
The court reviewed a series of Hong Kong authorities which suggested that arbitral awards should be complied with and held that where a party unsuccessfully resists enforcement, this may be an exceptional circumstance justifying an indemnity costs order.
The court considered factors underlying the Hong Kong authorities and decided that they applied equally to this case. This did not mean that an unsuccessful application to resist enforcement would always lead to an indemnity costs order. Nevertheless, the court indicated that on the facts of the case, it would make an indemnity costs order.
Comment
This case is important for its very powerful statements in support of the arbitral process and the clear indication that the court will not review what the arbitral tribunal has done unless it is relevant to an exception in Article V of the New York Convention. The court will not consider extraneous matters beyond Article V of the New York Convention. Once the award and the arbitration agreement are established, there is a heavy onus on an award debtor to demonstrate that an exception applies. Furthermore, the award debtor may be estopped from relying at the enforcement stage on any issues that should be raised before the arbitral tribunal or before the supervisory courts.
Furthermore, the case demonstrates that unchallenged arbitral awards should be complied with, otherwise a party resisting enforcement further runs the significant risk of paying indemnity costs for doing so.