The Australian High Court has dismissed a Chinese manufacturer’s challenge to the validity of the nation’s legal framework for resolving international disputes, but some reputational damage has been done.
Arbitration experts are hailing the unanimous decision as instilling confidence that will boost Australia’s role in international commercial dispute resolution in the Asia Pacific region.
But it could have completely unravelled the system and with it the promotion of the nation as an arbitration venue.
Professor of comparative and transnational business law at University of Sydney, Luke Nottage said the fact the case was brought at all damages the nation’s reputation as a serious contender for international commercial arbitration in the Asia-Pacific region.
It comes as federal and state governments seek to promote Australia’s role in international commercial arbitration.
Each case heard in Australia brings in around $1 million to the economy.
London has hundreds of arbitration matters that draw in billions, and Singapore has invested more than $100 million in infrastructure to promote cases being heard there.
The High Court case concerned Chinese company TCL Air Conditioner which disputed the Federal Court’s power to enforce an award in relation to a contractual dispute with Victoria-based electronics distributor Castel Electronics.
Castel had taken TCL to arbitration, claiming breaches of an agreement for the supply of air conditioners. TCL was ordered to pay $3.37 million and legal costs.
When TCL defaulted, Castel went to the Federal Court to enforce the order, while TCL argued in separate proceedings before the High Court that the arbitration provisions under which the enforcement was made were constitutionally invalid and the Federal Court had no power to enforce the award.
This threw questions over the effective operation of arbitration in Australia.
The High Court dismissed TCL’s application that under UNCITRAL Model Law on International Commercial Arbitration, the Federal Court had no power to refuse to enforce an arbitral award on the ground that an error of law is apparent on the face of the award.
“Correctly understood, the task of the Federal Court to determine the enforceability of arbitral awards, by reference to criteria which do not include a specific power to review an award for error, is not repugnant to or incompatible with the institutional integrity of that Court,” the judgment said.
“An arbitral award made in the exercise of a power of private arbitration does not involve any impermissible delegation of federal judicial power.”
Australian Centre for International Commercial Arbitration president Doug Jones said the decision confirmed the constitutionality of the International Arbitration Act, the legal framework which underpins Australia’s position as an international business destination to resolve cross border disputes.
“It signals to the global business community that we have a first-rate legal and regulatory infrastructure that is pro-arbitration, pro-enforcement and cost-effective,” Jones said.
But Professor Nottage said the fact the challenge was even brought undermined Australia’s position as a credible venue for international commercial arbitration in the Asia Pacific region.
A successful challenge would have required Australia to withdraw from the widely-accepted New York Convention governing recognition of foreign arbitral awards, Nottage said.
As noted in the judgment that convention has been adopted by more than 140 countries including Australia and similarly to the UNCITRAL Model Law on International Commercial Arbitration, does not allow challenges to arbitral awards based on a serious error of law.
“No other major venue in Asia has experienced any such constitutional challenge, to my knowledge,” he said.
“It keeps alive some lingering doubts about how serious Australia is in respect of international commercial arbitration and whether the legal advisors in Australia get the message about what’s expected of a major venue.
“Hopefully this judgment will send a message to the legal profession in Australia that the nation’s courts are becoming more keen to promote international commercial arbitration.”