Transnational Notes

Today’s international businessperson should never travel far without an arbitration agreement.  One would expect to hear that from arbitration lawyers, hungry for business (or business class flights).  Yet Australia’s courts have now joined many others in viewing arbitration as essential to international commerce, seen recently with the decision in Dampskibsselskabet Norden A/S v Gladstone Civil Pty Ltd (“Norden”).[1]  After exploring the role of this “international commercial policy” in Norden, I evaluate the ways in which the New York Convention (“NY Convention”)[2] and the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”)[3] legitimate the use of such a policy in resolving arbitration issues.  Applying this policy, I suggest an alternative approach to Norden for upholding arbitration of carriage of goods by sea disputes.

I           Norden

Norden concerned a dispute arising under a voyage charterparty for the carriage of coal from Australia to China between a Danish ship-owner and an Australian charterer, with a choice of English governing law.[4]  The dispute was referred to London arbitration in accordance with the parties’ agreement.[5]  In resisting enforcement of unfavorable awards, the Australian relied on the Carriage of Goods by Sea Act 1991 (Cth) (“COGSA”), s 11(2)(b) of which provides, inter alia, that an agreement “has no effect” insofar as it purports to “preclude or limit the jurisdiction of [an Australian] court in respect of” a sea carriage document relating to the carriage of goods from Australia.  This section does not apply to arbitration agreements with a seat in Australia.[6]  Section 11’s purpose is to protect Australian shippers from the inconvenience of litigating abroad.[7]  Similar protections are found in Argentina, Canada and South Africa.[8]

Australia has implemented its obligations under the NY Convention in the International Arbitration Act 1974 (Cth) (“IAA”), but s 2C provides that “[n]othing in this Act affects…the operation of section 11…of [COGSA]”.  A majority in Norden found that COGSA s 11 did not apply to voyage charterparties and overturned the lower court’s decision refusing enforcement of the awards.[9]  The international commercial policy played a significant role in reaching this result.  Justice Mansfield acknowledged that, although it was clearly open to construe s 11 as applying to voyage charterparties, the “better approach” was to exclude such contracts from its operation due, in part, to the longstanding acceptance that “international commercial disputes…may be settled by arbitration”.[10]  Justice Rares similarly relied upon the “policy of reocognising and encouraging private arbitration as a valuable method of settling disputes arising in international commercial relations” to narrowly construe s 11.[11]  The case highlights how the international commercial policy encourages reaching an outcome which favors arbitration when alternative constructions or resolutions of issues arise in international commercial disputes.[12]

II         The Validity of the International Commercial Policy

The international commercial policy, as applied in Norden, has both international and national aspects.  The international aspect recognizes that an “ordered efficient dispute resolution mechanism leading to an enforceable award…is an essential underpinning of commerce”,[13] the unenforceability of which would “damage the fabric of international commerce and trade”.[14]  This international aspect has been applied by courts throughout the world in, for example, broadening arbitrability,[15] or narrowing grounds for refusing enforcement of awards.[16]

The international aspect of the policy is also supported by the NY Convention.  While the text of the Convention evidences a pro-enforcement policy,[17] the travaux préparatoires indicate this arises from arbitration being essential for international commerce.  The ICC, whose Report drove the impetus for the NY Convention,[18] sought greater recognition and enforcement of arbitration awards in order to develop international trade.[19]  The philosophy of arbitration as a tool to promote trade and development was wholeheartedly adopted by the drafting committee and Conference.[20]  In interpreting the NY Convention, courts must have regard to its object and purpose.[21]  This includes the international aspect of the international commercial policy.[22]

The national aspect, on the other hand, stems from a belief that a court’s disfavor of arbitration could discourage the expansion of their nationals’ businesses or deter others from doing business with their nationals.[23]  This belief has some justification.  First, the World Bank emphasizes the enforceability of contractual promises as part of the ease of doing business in a given country, which suggests failing to enforce agreed dispute resolution mechanisms may deter business in the country.[24]  Second, the few studies undertaken on business attitudes towards arbitration indicate businesses see arbitration as the only effective dispute resolution mechanism for cross-border transactions.[25]  Finally, in this author’s experience, a party often insists on pre-dispute protections in contracts, such as bank or third party guarantees, when the other is from a country notorious for its enforcement difficulties.  These measures increase transaction costs or may deter transactions with that country entirely.  While these concerns do not form part of the NY Convention’s objects or purposes, broader policy considerations are often taken into account by courts when exercising their functions or construing legislation.[26]  It is legitimate to include this national aspect in the international commercial policy to which courts should have regard.

III        Applying the International Commercial Policy to Norden

Norden applied the international commercial policy in finding COGSA s 11 did not apply to voyage charterparties, but the award should have been enforced even if voyage charterparties were “sea carriage documents” and, therefore, covered by s 11.  While nothing in the IAA affects COGSA s 11, one must still ask whether s 11, even if applicable, requires an award made outside of Australia to be denied enforcement.[27]  The below analysis, informed by the international commercial policy, suggests not.

First, failing to enforce the awards at issue in Norden would have been contrary to Australia’s obligations under the NY Convention.  There were three arguable grounds for non-recognition of the awards in Norden, but each was unlikely to apply.  Article V(1)(a) of the NY Convention allows non-enforcement when the arbitration agreement is invalid under the law chosen by the parties to govern its validity or, failing a choice, the law of the place where the award was made.  The Norden parties chose English law to govern the main contract, from which an implication can usually be drawn that they intended English law to govern their arbitration agreement as well.[28]  Even if COGSA s 11(1) (which invalidates the choice of foreign law in a “sea carriage document”) is taken into account,[29] the arbitration agreement remains a separate contract and the chosen seat of arbitration may still imply English law as that chosen by the parties.[30]  Failing any implied choice, the validity of the arbitration agreement is still determined under English law, as the Convention defaults to the place of the award.  As English law would uphold the validity of the arbitration agreement, art. V(1)(a) of the NY Convention is not an available ground for setting aside the award.

Second, art. V(2)(a) (subject-matter inarbitrability) is also unlikely to apply because COGSA s 11(3) expressly recognizes that the subject-matter of such disputes are arbitrable; it allows disputes under “sea carriage documents” to be arbitrated in Australia.  Finally, the “public policy” exception in art. V(2)(b) is generally reserved for when enforcing the award would violate the State’s “most basic notions of morality and justice”.[31]  It is difficult to argue that the concern of protecting Australian shippers from the inconvenience of litigating overseas meets this high threshold.  Accordingly, the NY Convention requires enforcement.

Australia is a dualist system such that the NY Convention does not necessarily prevail over COGSA s 11 (and the IAA expressly provides otherwise).  However, the conflict with the NY Convention and the international commercial policy strongly suggest s 11 should, to the maximum extent possible, be construed favorably for enforcing arbitration awards.  A plausible construction of s 11 is that it simply provides parties cannot oust the jurisdiction of Australian courts over “sea carriage documents”; the position for all contracts at common law prior to statutory intervention.[32]  Thus, if a party desires to bring a dispute under a “sea carriage document” to an Australian court, the court need not stay its proceedings due to a foreign arbitration agreement.  That does not mean the arbitration agreement is itself invalid, nor that a resulting award is unenforceable in Australia.  Further, under Australian law, an award extinguishes the underlying dispute.  In enforcing an award, the court is not concerned with rights or liabilities under a “sea carriage document”, but a party’s obligation to comply with the award.[33]  As at common law, the court’s jurisdiction is not ousted contrary to COGSA s 11, because the rights and liabilities under the “sea carriage document” are subsumed with the award which the court is now asked to enforce.[34]

IV        Conclusion

This suggested alternative approach to Norden is particular to the text of Australia’s COGSA, but the analytical approach adopted may have broader application to enable the enforcement of awards in jurisdictions which seek to override choice of forum clauses in carriage of goods by sea contracts.  While there might be good policy reasons for protecting certain persons from litigating overseas, if no party seeks to avail themselves of the local courts and disputes are in fact referred to arbitration, it makes little sense to construe the legislation as invalidating the arbitration agreement or the resulting awards when the text does not expressly provide for such a result.  The international commercial policy suggests the non-enforcement of awards would have adverse effects for international and national commerce, which provides a compelling reason for courts to construe statutes which restrict recourse to arbitration narrowly.

 

Jesse Kennedy

The author is a Class of 2014 LL.M. student in the International Litigation, Arbitration and Business Regulation program at New York University.  He obtained his Bachelor of Laws with Honors from the Australian National University in Canberra.  The author was previously a judicial clerk to the Hon. Justice Gummow AC on the High Court of Australia, and an Associate working in international arbitration and transport litigation with Norton Rose Fulbright in Sydney.