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07 Nov 2013

Parties not entitled to leisurely expanse of time to develop dud arguments

by Mark Gillard, Louise Dargan

Any agreed limitations on the parties' rights to make oral submissions or other agreed procedural limitations will be a relevant consideration in determining the opportunity afforded to each party to present its case.

Following a recent decision of the Full Federal Court, it is clear that a party to an international arbitration will not be able to prevent enforcement of an arbitral award on the basis that the Arbitral Tribunal failed to give it an opportunity to develop arguments where those arguments had no prospects of success.

In Gujarat NRE Coke Limited v Coeclerici Asia Pte Ltd [2013] FCAFC 109, the Full Court of the Federal Court of Australia upheld the decision of Justice Foster not to refuse enforcement of an award on the basis that there had been a denial of natural justice by the arbitrators. The Court rejected Gujarat's arguments that it had been denied an opportunity to present its case or procedural fairness.

The reasoning of the Federal Court

In reaching its decision, the Full Court considered the content of the right of a party to present its case when:

  • defences identified (but not developed) by that party were without merit; and
  • the parties had expressly agreed to an award being rendered without the need for a hearing if a party failed to pay moneys owing under a contract.

The Court found that the conduct of the arbitrators, in issuing an award without allowing Gujarat time to develop its defence was "entirely understandable" in the circumstances. The Court approved the primary judge's reasoning that the arbitrators had considered the arguments identified by Gujarat against proceeding to an award and had determined them to have no prospects of success. As the Court stated: "there is a clear relationship between the quality of the point being raised and the length of time and the procedure to be employed" to resolve it.

The facts

Coeclerici commenced arbitration proceedings to recover the purchase price of US$10 million it had paid to Gujarat as well as liquidated damages under a contract for the sale of metallurgical coke, which Gujarat had failed to deliver.

Immediately prior to the hearing, the parties entered into an Agreement to suspend the arbitration and allow Gujarat 15 days to pay the outstanding amounts. The Agreement provided that, in the event of non-payment, Coeclerici could resume the arbitration and that Gujarat "expressly and irrevocably" agreed that Coeclerici would be entitled to "an immediate consent award, without the need for any pleadings or hearings". Gujarat defaulted and Coeclerici requested the Arbitral Tribunal to proceed to a final award in its favour.

Before proceeding to make an award, the Arbitral Tribunal communicated to the parties its intention to do so and asked Gujarat to make clear any reason why it should not so proceed, by close of business the following day. Gujarat's lawyers wrote the next day to say that they had been unable to obtain instructions, but submitted that there had been a breach of an implied term of the Agreement or, alternatively, that Gujarat lacked capacity to enter into the Agreement. Neither of these submissions was ever explained – in that communication or subsequently – but Gujarat asserted that the Arbitral Tribunal lacked the power to issue an award in circumstances where Gujarat had not been afforded an opportunity to develop these points. The Arbitral Tribunal ultimately proceeded to issue the award in the terms sought by Coeclerici.

In these circumstances, the Full Federal Court endorsed the Arbitral Tribunal's decision to proceed to an award and held that Gujarat "had no right to some leisurely expanse of time to think up and develop points".

Implications of the decision for a party's right to present its case

The case emphasises that the content of the right of a party to present its case will depend on the particular circumstances of the case. The decision in Gujurat indicates that any agreed limitations on the parties' rights to make oral submissions or other agreed procedural limitations will be a relevant consideration in determining the opportunity afforded to each party to present its case and will ultimately inform how a court will view the tribunal's treatment of the parties.

At first glance, Gujarat appears to provide arbitrators with broad procedural leeway to achieve the despatch in disposition expected of arbitration by commercial parties. However, parties should remember that circumstances which have been accepted as constituting a denial of procedural fairness in court proceedings could similarly amount to a denial of procedural fairness in an arbitration.

For example, as was recently affirmed in Murray and Roberts Australia Pty Ltd v G B Lifestyles Pty Ltd [2013] WASC 345, there will be a denial of procedural fairness if an arbitrator reaches a decision based on a construction of a contract not argued by either party and without affording the parties an opportunity to put submissions on the point.

Deference to courts of the supervisory jurisdiction

The decision in Gujarat is also noteworthy for the weight given by the Federal Court to the earlier decision of the High Court of England and Wales (as a court of the supervisory jurisdiction) not to set aside the award. In this regard, the Full Court observed that it would be generally inappropriate for a court hearing an application to enforce an award in a New York Convention country to reach a different conclusion to the court of supervisory jurisdiction on the same issue.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.