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Arbitration – international arbitration – enforcement of award – where supervisory court appointed the arbitral tribunal…

…whether enforcing court should accept composition of the arbitral tribunal was in accordance with the agreement of the parties – comity.

The principal issue in Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110 (25 June 2021) was whether an award should be enforced in circumstances where the appellant (Hub) contended that the composition of the arbitral tribunal was not in accordance with the agreement of the parties as envisaged by s8(5)(e) of the International Arbitration Act 1974 (Cth) (IAA) notwithstanding that the tribunal was appointed by a court at the seat of the arbitration in Qatar.

There was an additional issue as to whether the court should exercise its discretion to recognise and enforce the award in issue.

Section 8(5)(e) of the IAA

Section 8 of the IAA provides that a foreign award is binding for all purposes on the parties to the award and may be enforced in the Federal Court as if the award were a judgment or order of that court.

The court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and (7). Relevantly, s8(5)(e) provides that “…in any proceedings in which the enforcement of a foreign award is sought…, the court may, at the request of the party against whom it is invoked, refuse to enforce the award if that party proves to the satisfaction of the court that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place…”.

Background

The respondent (ECQ) the award creditor, is a company incorporated in Qatar. Hub, the award debtor, is a company incorporated in Australia. In 2010, ECQ and Hub entered into a contract for Hub to supply and install street lighting equipment and accessories, and street furniture and accessories, in Doha, Qatar. Relevant contractual provisions included that:

(a)         if any dispute could not be amicably resolved and was referred to arbitration, the ‘Arbitration Committee’ was to consist of three members, one chosen by each of the parties and the third member by the two party appointees. If a decision could not be reached in relation to the third member the appointment of that member could be referred by either party to the Qatari courts for determination (Art.46)

(b)         the contract was made in the State of Qatar and is subject to the laws of the State of Qatar (Art.47).

(c)          English was the ruling language of the contract and accordingly all matters relating to the contract shall be in English (Art.50).

In August 2011, ECQ paid US$820,322.16 to Hub under the contract as an advance payment. However, in 2012 ECQ decided not to proceed with the contract and sought repayment of the money paid under the contract.

ECQ did not send a notice to Hub pursuant to the contract giving Hub an opportunity to appoint one member of the arbitration committee. Instead, in June 2016, ECQ filed a statement of claim in the Plenary Court of First Instance of the State of Qatar in reliance on Art.195 of Law No.13 of 1990 promulgating the Civil and Commercial Code of Procedure (Qatar) of the Qatari Civil Procedure Code (Art.195) seeking orders that the court appoint an arbitral tribunal of three arbitrators including an arbitrator nominated by ECQ. Hub did not participate in the Qatari court proceeding.

The Qatari court made orders in January 2017 appointing an arbitral tribunal. Thereafter, the arbitral tribunal sent to Hub’s nominated address six notices in English about the conduct of the arbitration between April 2017 and July 2017, with the arbitration being adjourned on three occasions due to Hub’s failure to attend. Hub did not participate in the arbitration proceeding.

On 1 August 2017, the arbitral tribunal issued an award, in Arabic, obliging Hub to pay ECQ amounts totalling in excess of $1,045,000.

The appeal

Hub appealed the determination of the primary judge who made orders for the recognition and enforcement of the award. Two broad issues were raised on appeal.

The appointment of the arbitral tribunal: The first issue was whether Hub could resist enforcement of the award in Australia on the basis that the arbitral tribunal was not appointed in accordance with the parties’ agreement, notwithstanding the appointment of the tribunal by the Qatari court.

The court observed that the contract provided the customary way for each party to a dispute to appoint an arbitrator and for the two arbitrators so appointed to appoint the third member of the tribunal. Art.195 provided, in the customary way, for the court at the seat of the arbitration to appointment arbitrators where the parties’ agreed procedure has failed.

The court determined that Art.195 did not provide for the court to appoint arbitrators contrary the parties’ agreed procedure simply because the parties were in a contractual dispute. If that were the case, then the court could always appoint arbitrators, regardless of what the parties had agreed. This would be contrary to the fundamental premise underlying arbitration, and the court’s enforcement of arbitration awards, which is that the jurisdiction of the tribunal arises from the agreement or consent of the parties.

The court found that the Qatari court proceeded upon a misapprehension as to the facts. It appointed the tribunal because, as it understood the position, ECQ had invoked the Art.46 procedure but Hub had failed to respond. However, it had not done so.

In these circumstances, under Qatari law the composition of the arbitral tribunal was not in accordance with the agreement of the parties and the basis to resist enforcement of the award in reliance on s8(5)(e) of the IAA was established.

ECQ submitted that Hub’s remedy was to seek to set aside the appointment of the arbitral tribunal or the award at the seat and that, as a matter of comity, the court should regard the decision of the Qatari court as effective until set aside.

The court, however, determined that there was no detraction from the principle of comity by not enforcing the award because the Qatari court acted on a misapprehension of the true position in appointing the arbitral tribunal. Further, the court stated that Hub had the right (subject to the question of discretion) under the law of Australia to not have enforced against it an arbitral award by an arbitral tribunal that was not composed in accordance with what it had agreed.

The discretion: The essential question identified by the court was whether, as a matter of discretion, the award can or should be enforced notwithstanding that, first, the arbitration proceeding was conducted in Arabic, not English, and, second, the arbitral tribunal was prematurely appointed by the Qatari court, both contrary to the procedure agreed by the parties.

Contrary to the submission by Hub, the court found the primary judge was correct to conclude that the language irregularity had no prejudice to Hub because it had received notices of the arbitration in English and it had elected not to participate, and that the immateriality of the irregularity would fully justify the exercise of the enforcement discretion notwithstanding the irregularity.

However, the court determined that the composition of the arbitral tribunal other than in accordance with the agreement of the parties was fundamental to the structural integrity of the arbitration; “it strikes at the very heart of the tribunal’s jurisdiction” (at [104]). Thus, the court would not exercise the discretion to enforce the award.

Conclusion

The appeal was allowed with the consequence that the orders and declaration of the court at first instance were set aside and substituted with an order that the proceedings be dismissed.

Anthony Lo Surdo SC is a barrister, arbitrator and mediator in 12 Wentworth Selborne Chambers, Sydney, and Lonsdale Chambers, Melbourne. Joanne Sheperd is a barrister in 12 Wentworth Selborne Chambers, Sydney.

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