30 Jun 2011
High Court to consider international arbitration and abuse of process
The Michael Wilson & Partners Limited case will test the operation of a foreign arbitral award made after an Australian judgment
The High Court of Australia has a prime opportunity to provide much-needed clarification of general principles of international arbitration law. The opportunity comes at a time when there is a significant movement in Australia to promote international arbitration.
The High Court has granted a foreign law firm, Michael Wilson & Partners Limited (MWP), special leave to appeal from a decision of the NSW Court of Appeal on questions regarding abuse of process and the status of foreign arbitral awards in Australia.
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 who the judge found to be the "backbone" of the 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 New South Wales Court of Appeal 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 in which MWP would be prohibited from obtaining a better result against the accessories in NSW than it obtained against the principal in the London arbitration. 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 bore in an arbitration.
Accordingly, the focal point of the High Court appeal is whether it is an abuse of process for MWP to commence proceedings in NSW after commencing an arbitration in a foreign jurisdiction. This will test the status of a foreign arbitral award against a judgment obtained in Australia on similar facts and related issues against third parties.
The question has never been considered by the High Court. However, if the High Court follows leading English authorities such as Sun Life v Lincoln National, the legal result would be clear: an arbitral award is not in its nature available to third parties for any purpose, so the two Australians found by the NSW Court to have accessorial liability could not rely on a private and confidential arbitral award to which they are not party to later defeat their judgment liability.
It is well recognised in England that arbitrations on similar issues may be determined differently by the arbitrator in each arbitration. Further, while it has been established law for many years in Australia and England that it is an abuse of process for a litigant to raise an issue which has already been determined in a separate court proceedings, that doctrine of abuse of process has never been applied in respect of private arbitral proceedings.
That is hardly surprising: there are powerful reasons against extending the abuse of process doctrine to arbitral proceedings, one of which is that that the doctrine is predicated on the assumption that any inconsistency between judgments could be avoided by, for example, forced joinder of parties or hearing separate proceedings together. However, the private and confidential nature of arbitration means that these mechanisms are not ordinarily available in arbitration, other than by consent of the parties.
The rapidly increasing popularity of arbitration suggests that the inability to join third parties without their consent and the possibility of inconsistent determinations is rarely so inconvenient that it outweighs the perceived advantages of arbitration, including confidentiality, speed and privacy.
In addition, the High Court will consider whether there was an apprehension that the senior NSW judge who heard a trial was biased and whether the defendants waived their opportunity to complain about apprehended bias.
The High Court is expected to hear the matter in June this year. Clayton Utz partner Sid Wang acts for MWP.
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