Projects & Construction
A recent Federal Court of Australia appellate judgment ruled that a foreign arbitral award is non-enforceable where the tribunal was not constituted in strict accordance with the parties’ arbitral agreement, thereby affirming the primacy of those terms and reiterating that local enforcement of international arbitration awards is a confined exercise despite the contextual backdrop of Australia’s perceived ‘pro-enforcement’ bias.
Allowing an appeal from its own first instance decision, a Full Court of the Federal Court of Australia (Full Court) in Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company  FCAFC 110 declined to enforce a foreign arbitral award in Australia owing to a failure to validly compose the Qatari-seated tribunal in proper accordance with the prescriptive terms of the disputants’ underlying arbitration agreement. This is one of the rare occasions on which an Australian court has denied enforcement of an international arbitration award. The judgment also sheds instructive light on the approach senior Australian courts will adopt regarding the nature of a residual discretion to enforce an award in circumstances where a ground for denial of enforcement is properly made out: an issue previously unexplored in Australian curial jurisprudence.
The case concerns an arbitral award issued in 2017 against Hub Street Equipment Pty Ltd (Hub), following a dispute arising under a contract for supply and installation of street lighting and street furniture in Energy City, (the Contract). The Contract was governed by the laws of Qatar and provided for resolution of disputes by arbitration under the Qatari arbitration rules. Importantly, the Contract set out a procedure for appointment of a three-member arbitral tribunal, requiring each party to nominate an arbitrator, with the president of the tribunal to be selected by the two nominated arbitrators. The Contract further stipulated that all matters relating to the Contract were to be conducted in English.
Energy City Qatar Holding Company (ECQ) made a US $820,322.16 advance payment to Hub but subsequently decided not to proceed with the Contract and sought repayment of this sum. By-passing the arbitrator nomination procedure under the Contract, ECQ instead filed a claim in Qatar’s Plenary Court of First Instance seeking orders that the Court appoint a three-member arbitral tribunal. The Court appointed three arbitrators, who subsequently rendered an award in favour of ECQ. The award was rendered in Arabic, with an English translation provided. Hub participated in neither the Qatari Court proceeding nor the arbitration. ECQ sought enforcement of the award in Australia, on the basis that Hub is an Australian incorporated company.
At first instance, Justice Jagot granted enforcement of the award, holding that there would be no resultant unfairness as Hub had adequate opportunity to participate in the arbitration and had received actual notice of the proceedings and constitution of the tribunal. Accordingly, judgment was entered in favour of ECQ together with costs of the proceeding.
There were two key issues on appeal:
The Full Court, comprised of a three-judge appellate bench, upheld the appeal. In lead judgment, with which the other justices agreed, Justice Stewart ruled that the award should not be enforced in Australia because the arbitral tribunal was not constituted in accordance with the parties’ arbitral agreement, thereby lacking requisite authority to determine the dispute and grant relief. As such, the Full Court held that there was little, if any, scope to exercise the residual discretion to enforce the award and it should therefore be withheld. On this basis, the Full Court set aside the first instance orders and declarations, ruling that the proceeding be dismissed.
In arriving at its determination, the Full Court adjudged ECQ’s failure to follow the agreed procedure for appointment of the arbitral tribunal enlivened the ground for non-enforcement under section 8(5)(e) of the IAA, and Article V(1)(d) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (New York Convention). The Full Court also dismissed ECQ’s principal argument that the Qatari Court’s appointment of the tribunal must be regarded as valid under the law of the seat, and Hub’s remedy was to challenge this decision in Qatar rather than resist enforcement in Australia:
“There is no detraction from the principle of comity, so understood, by not enforcing the award in this case on the basis that the Qatari Court acted on a misapprehension of the true position in appointing the arbitral tribunal. There are several considerations that lead to that conclusion. First, there is no disrespect of, or lack of goodwill towards, the Qatari Court to recognise that it acted upon a misapprehension of what we now know the facts to be. Secondly, any exercise of jurisdiction of the Qatari Court to appoint arbitrators to the dispute of the parties rested on the parties’ agreement, and since what they agreed was not followed the basis for the exercise of that jurisdiction was lacking; the failure goes to the very heart of the decision that ECQ would have this Court recognise. […] Hub has the right (subject to the question of discretion which I will come to) under the law of Australia to not have enforced against it here an arbitral award by an arbitral tribunal that was not composed in accordance with what it had agreed. Section 8(5)(e) of the IAA is a law of the Commonwealth of Australia that the Court cannot merely brush aside in the interests of comity; the Court is duty bound to apply it.”
Having therefore decided that a ground for non-enforcement was fully made out, the second issue arising for determination by the Full Court was whether, as a matter of discretion, the award can or should nevertheless be enforced. Finding that there was no authoritative statement in Australia on the nature of the discretion to enforce an award under the IAA, the Full Court instead had regard to international arbitration authorities on the issue. The Full Court also had regard to the New York Convention’s “pro-enforcement bias” which finds expression in the limited and narrow non-enforcement grounds an award debtor must establish, determining there is:
“no justification in the text and structure of the Convention to justify a broad-ranging or unlimited discretion to enforce even when one of the narrow grounds for non-enforcement is made out. There is, equally, no justification in the text and structure to conclude that there is no discretion, or to limit it to such an extent that in cases of irregularity that has caused no material prejudice the court must nevertheless not enforce the award.”
Accordingly, the Full Court found that the irregularity arising by virtue of the arbitration being conducted in Arabic, while contrary to the parties’ agreement, was immaterial and would justify an exercise of the enforcement discretion because Hub had received several notices of the arbitration in English and had chosen not to participate.
The irregularity in respect of the constitution of the arbitral tribunal, on the other hand, was “fundamental to the structural integrity of the arbitration” and went to “the very heart of the tribunal’s jurisdiction”. The Full Court therefore deemed this was not a matter warranting positive exercise of the enforcement discretion.
Finally, a separate question arose as to whether the Full Court should hand down judgment in circumstances where the parties communicated to the Court that they had reached a settlement in principle. In ruling that judgment should be delivered, Chief Justice Allsop (with whom the other justices agreed) noted that no notice of discontinuance had been filed, and referred to the Court’s discretion to publish judgment where the private interests of the parties to settle are outweighed by the countervailing public interest in making the judgment available to the public.
For award creditors and debtors alike, this important decision provides further useful guidance on Australia’s curial enforcement of international arbitration awards and judicial preparedness to draw hard lines in the sand, particularly where the award in question contains significant procedural irregularities. Notably:
 Per Jagot J in Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2)  FCA 1116.
 Section 8(5)(e) of the IAA provides: “Subject to subsection (6), in any proceedings in which the enforcement of a foreign award by virtue of this Part 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: […] (e) 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; […]”
 Article V(1)(d) of the New York Convention provides: “Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: […] (d) 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; […]”
 The reference to the discretion is a reference to the permissive language used in section 8 of the IAA and Article V(1) of the New York Convention, namely that recognition and enforcement of the award in question “may be refused” on one or more enumerated grounds.
 This communication was made only four days before judgment was to be handed down.
 Although it should be noted that the standard of proof is no higher than the ordinary ‘balance of probabilities’ test applied in civil cases.
 As a general rule of international law, including under the text and structure of the New York Convention, it is not incumbent upon an award debtor to take positive steps at the arbitration seat to set aside the award.