Arbitration is intended to be an efficient process conducted by an appropriate expert resulting in a binding award. A key aspect of arbitral efficiency is the ability to enforce awards without the need for subsequent judicial review of the substance of those awards– which review would serve to duplicate and therefore add further delay and expense to the process.

In recent years, efforts have been made to promote Australia as a venue for international arbitration, such as the establishment of the Australian Centre for International Commercial Arbitration Limited (see Legal update, Australia: arbitration round up 2010/2011).

However, an application presently before the High Court has the potential to seriously affect Australia’s appeal as a seat for international arbitration. It brings into question the constitutional validity of the mechanism for enforcement of awards on the basis that the courts are provided with only limited grounds for review of the awards that they are asked to enforce. If the High Court application is successful it will prevent Federal Court Judges from enforcing awards made under an international arbitration conducted in Australia.

In its current form the International Arbitration Act 1974 (Cth) (IAA) adopts the UNCITRAL Model Law. The Model Law requires competent courts to enforce awards made under international arbitrations conducted in Australia with only very limited grounds of review. In particular, it is not a ground for review that there may be an error of law on the face of the award.

An application currently before the High Court in the case of TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia & Anor [2012] HCA S178 seeks to prevent the Federal Court from enforcing such arbitral awards. The application challenges those sections of the Act requiring enforcement of arbitral awards by Australian courts, on the basis that these provisions impair the constitutional integrity of the courts called upon to enforce the awards. The concern raised is that the courts are being asked to effectively "rubber stamp" awards without review or regard to matters such as the potential for errors of law. Further, it is argued that these sections of the Act impermissibly vest Commonwealth judicial power on arbitral tribunals: that is, they effectively grant the judicial power of a court to the arbitral tribunal.

If this particular matter is determined in favour of the applicant, Federal Court Judges will be unable to enforce international arbitral awards made in Australia under the Model Law in its present, unmodified, form. Instead, there would need to be , legislative amendment requiring courts to engage in some form of merits review of the award before enforcement could be granted. This is the very thing that the New York Convention seeks to minimise or avoid altogether and would lead to significant uncertainty regarding the enforceability in Australian courts of any awards made in an international arbitration conducted in Australia. In such circumstances, parties are likely to choose alternative venues for their international arbitrations where the enforceability of awards is certain. Although such a decision would be a retrograde step in terms of arbitration law, in preliminary hearings in the matter to date, comments made by the Honourable Justice Gummow have indicated some disdain for the arbitration process (see TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia & Anor [2012] HCATrans 172.)

Substantive argument of the application will be heard on 6 November 2012.