TICKETS, MONEY, PASSPORT – AND AN ARBITRATION AGREEMENT?

Today’s international businessperson should never travel far without an arbitration agreement.  One would expect to hear that from arbitration lawyers, hungry for business (or business class flights).  Yet Australia’s courts have now joined many others in viewing arbitration as essential to international commerce, seen recently with the decision in Dampskibsselskabet Norden A/S v Gladstone Civil Pty Ltd (“Norden”).[1]  After exploring the role of this “international commercial policy” in Norden, I evaluate the ways in which the New York Convention (“NY Convention”)[2] and the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”)[3] legitimate the use of such a policy in resolving arbitration issues.  Applying this policy, I suggest an alternative approach to Norden for upholding arbitration of carriage of goods by sea disputes.

I           Norden

Norden concerned a dispute arising under a voyage charterparty for the carriage of coal from Australia to China between a Danish ship-owner and an Australian charterer, with a choice of English governing law.[4]  The dispute was referred to London arbitration in accordance with the parties’ agreement.[5]  In resisting enforcement of unfavorable awards, the Australian relied on the Carriage of Goods by Sea Act 1991 (Cth) (“COGSA”), s 11(2)(b) of which provides, inter alia, that an agreement “has no effect” insofar as it purports to “preclude or limit the jurisdiction of [an Australian] court in respect of” a sea carriage document relating to the carriage of goods from Australia.  This section does not apply to arbitration agreements with a seat in Australia.[6]  Section 11’s purpose is to protect Australian shippers from the inconvenience of litigating abroad.[7]  Similar protections are found in Argentina, Canada and South Africa.[8]

Australia has implemented its obligations under the NY Convention in the International Arbitration Act 1974 (Cth) (“IAA”), but s 2C provides that “[n]othing in this Act affects…the operation of section 11…of [COGSA]”.  A majority in Norden found that COGSA s 11 did not apply to voyage charterparties and overturned the lower court’s decision refusing enforcement of the awards.[9]  The international commercial policy played a significant role in reaching this result.  Justice Mansfield acknowledged that, although it was clearly open to construe s 11 as applying to voyage charterparties, the “better approach” was to exclude such contracts from its operation due, in part, to the longstanding acceptance that “international commercial disputes…may be settled by arbitration”.[10]  Justice Rares similarly relied upon the “policy of reocognising and encouraging private arbitration as a valuable method of settling disputes arising in international commercial relations” to narrowly construe s 11.[11]  The case highlights how the international commercial policy encourages reaching an outcome which favors arbitration when alternative constructions or resolutions of issues arise in international commercial disputes.[12]

II         The Validity of the International Commercial Policy

The international commercial policy, as applied in Norden, has both international and national aspects.  The international aspect recognizes that an “ordered efficient dispute resolution mechanism leading to an enforceable award…is an essential underpinning of commerce”,[13] the unenforceability of which would “damage the fabric of international commerce and trade”.[14]  This international aspect has been applied by courts throughout the world in, for example, broadening arbitrability,[15] or narrowing grounds for refusing enforcement of awards.[16]

The international aspect of the policy is also supported by the NY Convention.  While the text of the Convention evidences a pro-enforcement policy,[17] the travaux préparatoires indicate this arises from arbitration being essential for international commerce.  The ICC, whose Report drove the impetus for the NY Convention,[18] sought greater recognition and enforcement of arbitration awards in order to develop international trade.[19]  The philosophy of arbitration as a tool to promote trade and development was wholeheartedly adopted by the drafting committee and Conference.[20]  In interpreting the NY Convention, courts must have regard to its object and purpose.[21]  This includes the international aspect of the international commercial policy.[22]

The national aspect, on the other hand, stems from a belief that a court’s disfavor of arbitration could discourage the expansion of their nationals’ businesses or deter others from doing business with their nationals.[23]  This belief has some justification.  First, the World Bank emphasizes the enforceability of contractual promises as part of the ease of doing business in a given country, which suggests failing to enforce agreed dispute resolution mechanisms may deter business in the country.[24]  Second, the few studies undertaken on business attitudes towards arbitration indicate businesses see arbitration as the only effective dispute resolution mechanism for cross-border transactions.[25]  Finally, in this author’s experience, a party often insists on pre-dispute protections in contracts, such as bank or third party guarantees, when the other is from a country notorious for its enforcement difficulties.  These measures increase transaction costs or may deter transactions with that country entirely.  While these concerns do not form part of the NY Convention’s objects or purposes, broader policy considerations are often taken into account by courts when exercising their functions or construing legislation.[26]  It is legitimate to include this national aspect in the international commercial policy to which courts should have regard.

III        Applying the International Commercial Policy to Norden

Norden applied the international commercial policy in finding COGSA s 11 did not apply to voyage charterparties, but the award should have been enforced even if voyage charterparties were “sea carriage documents” and, therefore, covered by s 11.  While nothing in the IAA affects COGSA s 11, one must still ask whether s 11, even if applicable, requires an award made outside of Australia to be denied enforcement.[27]  The below analysis, informed by the international commercial policy, suggests not.

First, failing to enforce the awards at issue in Norden would have been contrary to Australia’s obligations under the NY Convention.  There were three arguable grounds for non-recognition of the awards in Norden, but each was unlikely to apply.  Article V(1)(a) of the NY Convention allows non-enforcement when the arbitration agreement is invalid under the law chosen by the parties to govern its validity or, failing a choice, the law of the place where the award was made.  The Norden parties chose English law to govern the main contract, from which an implication can usually be drawn that they intended English law to govern their arbitration agreement as well.[28]  Even if COGSA s 11(1) (which invalidates the choice of foreign law in a “sea carriage document”) is taken into account,[29] the arbitration agreement remains a separate contract and the chosen seat of arbitration may still imply English law as that chosen by the parties.[30]  Failing any implied choice, the validity of the arbitration agreement is still determined under English law, as the Convention defaults to the place of the award.  As English law would uphold the validity of the arbitration agreement, art. V(1)(a) of the NY Convention is not an available ground for setting aside the award.

Second, art. V(2)(a) (subject-matter inarbitrability) is also unlikely to apply because COGSA s 11(3) expressly recognizes that the subject-matter of such disputes are arbitrable; it allows disputes under “sea carriage documents” to be arbitrated in Australia.  Finally, the “public policy” exception in art. V(2)(b) is generally reserved for when enforcing the award would violate the State’s “most basic notions of morality and justice”.[31]  It is difficult to argue that the concern of protecting Australian shippers from the inconvenience of litigating overseas meets this high threshold.  Accordingly, the NY Convention requires enforcement.

Australia is a dualist system such that the NY Convention does not necessarily prevail over COGSA s 11 (and the IAA expressly provides otherwise).  However, the conflict with the NY Convention and the international commercial policy strongly suggest s 11 should, to the maximum extent possible, be construed favorably for enforcing arbitration awards.  A plausible construction of s 11 is that it simply provides parties cannot oust the jurisdiction of Australian courts over “sea carriage documents”; the position for all contracts at common law prior to statutory intervention.[32]  Thus, if a party desires to bring a dispute under a “sea carriage document” to an Australian court, the court need not stay its proceedings due to a foreign arbitration agreement.  That does not mean the arbitration agreement is itself invalid, nor that a resulting award is unenforceable in Australia.  Further, under Australian law, an award extinguishes the underlying dispute.  In enforcing an award, the court is not concerned with rights or liabilities under a “sea carriage document”, but a party’s obligation to comply with the award.[33]  As at common law, the court’s jurisdiction is not ousted contrary to COGSA s 11, because the rights and liabilities under the “sea carriage document” are subsumed with the award which the court is now asked to enforce.[34]

IV        Conclusion

This suggested alternative approach to Norden is particular to the text of Australia’s COGSA, but the analytical approach adopted may have broader application to enable the enforcement of awards in jurisdictions which seek to override choice of forum clauses in carriage of goods by sea contracts.  While there might be good policy reasons for protecting certain persons from litigating overseas, if no party seeks to avail themselves of the local courts and disputes are in fact referred to arbitration, it makes little sense to construe the legislation as invalidating the arbitration agreement or the resulting awards when the text does not expressly provide for such a result.  The international commercial policy suggests the non-enforcement of awards would have adverse effects for international and national commerce, which provides a compelling reason for courts to construe statutes which restrict recourse to arbitration narrowly.

 

Jesse Kennedy

The author is a Class of 2014 LL.M. student in the International Litigation, Arbitration and Business Regulation program at New York University.  He obtained his Bachelor of Laws with Honors from the Australian National University in Canberra.  The author was previously a judicial clerk to the Hon. Justice Gummow AC on the High Court of Australia, and an Associate working in international arbitration and transport litigation with Norton Rose Fulbright in Sydney.



[1] [2013] FCAFC 107.

[2] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 (“NY Convention”).

[3] G.A. Res. 40/72, U.N. GAOR, 40th Sess., Supp. No. 17, U.N. Doc. A/40/17, at annex I (June 21, 1985), as amended by G.A. Res. 61/33, U.N. GAOR, 61st Sess., Supp. No. 17, U.N. Doc. A/61/17, at annex I (July 7, 2006).

[4] Norden [2013] FCAFC 107, [23]-[24].

[5] Id. at [25].

[6] COGSA s 11(3).

[7] Norden [2013] FCAFC 107, [71].

[8] Felix Sparka, Jurisdiction and Arbitration Clauses in Maritime Transport Documents: A Comparative Analysis 211 n.1334 (2009).  Until 1995, this was also the case in the United States:   State Establishment for Agricultural Product Trading v. M/V Wesermunde, 838 F.2d 1576, 1579 (11th Cir. 1988), overruled in Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995).

[9] Norden [2013] FCAFC 107, [14], [28], [126] and [133].

[10] Id. at [15].

[11] Id. at [63]-[66] and [71].

[12] See also Apache Bohaj Corp. LDC v. Texaco China BV, 480 F.3d 397, 401 and 404 (5th Circ. 2007); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983).

[13] Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, 94-95; TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court (2013) 87 ALJR 410, [10] (“TCL”).

[14] Scherk v. Alberto-Culver Co., 417 U.S. 506, 516-517 (1974) (“Scherk”).

[15] See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 629-631 (1985); ESAB Group, Inc. v. Zurich Insurance Plc, 685 F.3d 376, 390 (4th Cir. 2012); Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] Q.B. 701, 719; Attorney-General v Mobil Oil NZ Ltd [1989] 2 NZLR 649; 1987 NZLR LEXIS 716, 63-64; Canada Moon Shipping Co. Ltd. v. Companhia Siderurgica Paulista-Cosipa, (2012) 223 A.C.W.S. (3d) 12; 2012 F.C.A. 284, [68]-[70]; Karl-Heinz Böckstiegal et al., Germany as a Place for International and Domestic Arbitrations – General Overview, in Arbitration in Germany: The Model Law in Practice 3, 15-16 (Karl-Heinz Böckstiegal et al. eds., 2007); Emmanuel Gaillard, La Jurisprudence de la Cour de Cassation en Matière d’Arbitrage International, 2007 Rev. Arb. 697, 702-705 (2007); Karim Youssef, The Death of Inarbitrability, in Arbitrability 47, 57-64 (Loukas A. Mistelis et al. eds., 2009).

[16] See Soh Beng Tee & Co. Pte. Ltd. v. Fairmount Development Pte. Ltd., [2007] 3 S.L.R.(R) 86, 116-117; Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd., [1999] 1 H.K.L.R.D. 665, 691; Anton G. Maurer, The Public Policy Exception Under the New York Convention 66-67 (2012).

[17] NY Convention, arts. II, V and VII; Nigel Blackaby et al., Redfern and Hunter on International Arbitration 638-640 (2009); Gary B. Born, International Arbitration: Law and Practice 377-378 (2012).

[18] See infra note 20.

[19] U.N. ESCOR, Enforcement of international arbitral awards: statement submitted by the International Chamber of Commerce, U.N. Doc. E/C.2/373 (Sept. 10, 1953).

[20] See, U.N. ESCOR, Report of the Committee on the Enforcement of International Arbitral Awards, 3, U/N/ Doc. E/2704: E/AC.42/4/Rev.1 (Mar. 28, 1955); United Nations Conference on International Commercial Arbitration, 1st mtg. at 3-4, U.N. Doc E/CONF.26/SR.1 (May 20, 1958).

[21] Vienna Convention on the Law of Treaties art. 31(1), May 23, 1969, 1155 U.N.T.S. 331 (1969).  Strictly speaking, the Vienna Convention has no retroactive application such that it does not apply to the NY Convention.  However, arts. 31 and 32 are widely recognized as being a codification of the rules of customary international law, meaning such rules apply to the interpretation of all treaties unless a specific treaty provides otherwise: see, e.g., Dispute regarding Navigational and Related Rights (Costa Rica v. Nicaragua), 2009 I.C.J 213, 237 (July 13).

[22] The Resolution adopting the Model Law also recognized arbitration’s value to international commerce: G.A. Res. 40/72, U.N. GAOR, 40th Sess., Supp. No. 17, U.N. Doc. A/40/17, at 308 (June 21, 1985).

[23] See Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 8 (1972); Scherk, 417 U.S. 506, 517 (1974).

[24] World Bank and IFC, Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises 21-22 (2013).  See also OECD, Policy Framework for Investment: User’s Toolkit 17-21 (2011).

[25] See Christian Bühring-Uhle et al., Arbitration and Mediation in International Business 106-108 (2006); Queen Mary School of International Arbitration, Corporate Choices in International Arbitration: Industry Perspectives 6-9 (2013).

[26] See, e.g., Attorney-General (Cth) v Alinta Ltd (2008) 233 CLR 542, 553-554.  The IAA also requires such concerns to be taken into account: IAA ss 2D and 39B.

[27] But see Norden [2013] FCAFC 107, [133] (Buchanan, J.), finding the award should not be enforced because either COGSA s 11 rendered the agreement “ineffective” or on grounds of public policy.

[28] See, e.g., Gary B. Born, International Commercial Arbitration: Commentary and Materials 753 (2001); Martin Davies et al., Nygh’s Conflict of Laws in Australia 796 (8th ed. 2010).  An arbitration agreement is recognized as a separate agreement to that in which it is contained: Ferris v Plaister (1994) 34 NSWLR 474; Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, 101-105.

[29] An arbitral tribunal seated in London need not necessarily have regard to Australian law on the validity of the choice of governing law, rather this should be determined by the law putatively chosen by the parties: Linda Silberman & Franco Ferrari, Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting it Wrong, in Conflict of Laws in International Arbitration 257, 275-276 (Franco Ferrari & Stefan Kröll eds., 2011).

[30] See, e.g., Sulamerica Cia Nacional De Seguros v Enese Engenharia [2012] 1 W.L.R. 102 (U.K.).

[31] Parsons & Whittemore Overseas Co., Inc. v. Societe Generale de L’Industrie du Papier (Rakta), 508 F.2d 969, 974 (2nd Cir. 1974); Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2) [2012] FCA 276, [96]; IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 282 ALR 717, [129].

[32] TCL (2013) 87 ALJR 410, [76].

[33] See TCL (2013) 87 ALJR 410, [77]-[80].

[34] Cf. Scott v Avery (1856) 5 H.L.C. 811; 10 E.R. 414; Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, 653.

The Center for Transnational Litigation and Commercial Law aims at the advancement of the study and practice of international business transactions and the way to solve related disputes either through litigation or arbitration. As commercial transactions become increasingly international, it is vital to the legal and business communities to understand and analyze the practices and legal principles that govern relationships between firms and between firms and consumers in the international arena