08 Dec 2011

Arbitration and abuse of process: High Court clarifies their interaction

by Sid Wang, James Robinson

There is no automatic bar to maintaining proceedings merely because there is an arbitration on foot between some related parties.

The High Court of Australia has delivered a judgment which clarifies general principles of international arbitration law, abuse of process and inconsistent determinations. The judgment, delivered in favour of Clayton Utz client Michael Wilson & Partners Limited (MWP), represents a maturing of international arbitration law in Australia and coincides with a significant movement in Australia to promote international arbitration.

The trial, which was heard in 2009, related to the alleged diversion of profits and business opportunities by three Australians employed by MWP to work on energy and resources projects in Kazakhstan. The trial judge awarded MWP more than $8 million against two of the Australians, partly on the basis that they were accessories to breaches of fiduciary duties by the third man whom the judge found to be the backbone of the conspiracy. They were also found to be liable for procuring breach of contract and the tort of conspiracy. MWP pursued the third Australian separately in an arbitration in London, where he was later found liable, but on a more limited basis than the two Australians in NSW.

In 2010, the Court of Appeal found that it would be an abuse of process and would bring the administration of justice into disrepute if the accessories bore a greater liability in Court proceedings than the "principal" would bear in the arbitration. The Court of Appeal also found that there was an apprehension that the senior NSW judge who heard the trial was biased and ordered that the matter be sent for a retrial.

The High Court unanimously determined that it was not an abuse of process for a litigant to hold a judgment which was inconsistent with a foreign arbitral award delivered in an arbitration between different parties, regardless of whether there is an principal and accessory relationship involved. The majority (Acting Chief Justice Gummow, and Justices Hayne, Crennan and Bell) said:

"Neither the institution nor the prosecution to judgment of the proceedings was an abuse of process of the Supreme Court of NSW. No abuse of that process emerged for the first time when the arbitrators reached conclusions that differed from those reached by Einstein J… The claims against Mr Slater and Mr Nicholls, as knowing assistants, were not dependent upon the claims made against Mr Emmott…"

The Court's judgment recognises that the use of arbitration clauses can necessarily result in multiple proceedings on similar issues and that those proceedings may be determined differently by the arbitrator or judge in each case. It fills the previous vacuum in Australian law on the interrelationship between arbitration and court proceedings. There is no automatic bar to maintaining proceedings merely because there is an arbitration on foot between some related parties. Any inconsistencies in results may need to be dealt with later if there are issues of double recovery or the conspirators have rights of contribution against each other.

Clayton Utz partner Sid Wang and senior associate James Robinson acted for MWP.

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