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Federal Court of Australia adjourns enforcement of foreign award
Practical Law UK Legal Update 7-508-0578 (Approx. 4 pages)
Federal Court of Australia adjourns enforcement of foreign award
by Practical Law
| Published on 01 Sep 2011 • Australia |
Andrew Robertson (Partner), Piper Alderman
On 9 August 2011, the Federal Court of Australia considered the circumstances in which it would stay the enforcement of an arbitral award by the provision of security, its value, its form and the circumstances in which security may be granted to the enforcing party. The decision relates to the approach that the court should take regarding enforcement of an arbitral award, in circumstances where the award was the subject of an appeal at the seat of arbitration.
Background
Section 8(8) of the International Arbitration Act 1974 (the Act) provides:
"Where, in any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court is satisfied that an application for the setting aside or suspension of the award has been made to a competent authority of the country in which, or under the law of which, the award was made, the court may, if it considers it proper to do so, adjourn the proceedings, or so much of the proceedings as relates to the award, as the case may be, and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security".
This provision is equivalent to Article VI of the New York Convention.
Facts
The case arose from an ICC arbitration between ESCO Corporation (ESCO) and Bradken Resources Pty Limited (Bradken), conducted in Portland, Oregon in the US by a Canadian arbitrator, Gerald W Ghikas QC. The arbitration related to the manufacture of certain ESCO products in Australia, New Zealand and Papua New Guinea pursuant to a Licence Agreement (agreement). The agreement contained an arbitration clause.
In the arbitral award dated 11 June 2010, the arbitrator granted declaratory relief to ESCO and two orders for payment of monies due, namely:
- US$210,000 as reimbursement of procedural costs.
- US$7,747,087.88 for legal costs.
The reimbursement of procedural costs had been paid, but no payment had been made with respect to the legal costs.
ESCO took steps to have the arbitral award confirmed in the US District Court for the District of Oregon (Portland Division). The enforcement with respect to legal costs was resisted by Bradken, which argued that it had incurred legal costs of its own in association with its antitrust claims against ESCO. Bradken argued that the antitrust legal costs amounted to US$6 million.
The issue for the court was whether the amount properly payable was in the range of US$1.7 million, or the amount as awarded.
The US District Court published a judgment on 11 May 2011, confirming the award and the liability for the amount determined by the arbitrator, together with post-judgment interest accruing from the date of the judgment, at the US Federal interest rate. However, there was no award of pre-judgment interest. The US Federal interest rate applied was described as a "negligible rate", lower than the usual applicable interest rate pursuant to the Federal Court of Australia Act 1976 for post-judgment interest.
On 24 May 2011, Bradken lodged an appeal against this decision to the US Court of Appeal for the Ninth Circuit. The evidence was that this appeal was unlikely to be determined before the middle of 2013.
On 9 June 2011, proceedings were commenced by ESCO in the Australian Federal Court seeking a judgment for the:
- Procedural costs (at that time yet to be paid).
- Full legal costs awarded by the arbitrator.
- Pre-judgment interest from 11 June 2010 to judgment in the Australian Federal Court at the relevant Australian court rate.
- Post-judgment interest at the relevant Australian court rate.
Bradken responded by applying to the court for an adjournment of ESCO's application to enforce the award, until the final determination of proceedings in the US, including any appeals.
ESCO opposed the adjournment and asserted that Bradken should provide security for:
- The balance of the amount determined by the arbitrator in the award.
- Interest to date calculated at Australian rates (US$907,788.90).
- Interest for a further two years from 19 July 2011, which, calculated at the Australian rates, amounted to US$1,665,626.40.
Bradken responded, rejecting the alleged entitlement to interest, which it argued should be determined in accordance with the court of the seat of arbitration, that is, the US court (which had not awarded pre-judgment interest). Bradken offered security for the balance of the amount determined by the arbitrator in the award, together with an amount of interest (not the full amount asserted by ESCO).
There was also some discussion about the form of security, that is, whether it should be in the form of a letter of credit or irrevocable bank guarantee. The court also considered the option of a payment being made into court.
Decision
The Australian court decided to stay the proceedings. The court ultimately preferred the position adopted by Bradken as to the amount of security, that is, the balance due under the award. The court decided not to adopt ESCO's suggestion that security be provided by payment of a substantial sum into court. Rather, it was to be in the form of a letter of credit or bank guarantee.
The post-award interest was not included in the decision.
The discretion to adjourn enforcement proceedings pursuant to section 8(8) of the Act was considered to be a wide one. The court referred to English authorities, especially Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd's Rep 208, which provided useful guidance on the exercise of the discretion to adjourn the proceedings.
The court noted that the US District Court had found that the arguments advanced by Bradken were not frivolous. Accordingly, the court regarded Bradken's application to the US District Court and subsequent appeal to the US Appeals Court as bona fide.
The parties had chosen Oregon as the seat of the arbitration and that choice would be interpreted in accordance with the laws of Oregon. ESCO had chosen that jurisdiction to initially enforce the award and Bradken was entitled to seek to "vacate" the award in part in the confirmation proceedings. The US District Court and Appeal Court were plainly more appropriate venues than the Australian Federal Court to determine the questions of the validity and enforcement of the award.
The court held that ESCO had only come to the Australian courts after it had failed in its bid to secure interest on the amount of legal costs awarded to it.
Bradken was a substantial company, a wholly subsidiary of its listed parent, that had gross revenue of over AU$1 billion for the financial year ended 30 June 2010. The court held that even an adjournment for a relatively long time would not detrimentally affect ESCO's prospects of recovering the amount for legal costs awarded by the arbitrator. There was no suggestion that assets would be moved to avoid payment.
The court held that the provision of security would be adequate protection for ESCO.
Significantly, the court also noted that the quantum of "suitable security" would hardly ever be the amount which represents the largest possible verdict in favour of the enforcing party, based upon the most favourable view of all potential outcomes.
Comment
This decision shows the Australian courts' practical approach to balancing competing interests raised by these circumstances in the context of enforcement proceedings. Australian courts, in considering and applying the New York Convention, are prepared to consider the approach adopted by foreign courts to assist in applying international practice to the construction of the Convention.