Burying your head in the sand will not prevent enforcement of a foreign arbitral award against you:

Energy City Qatar Holding Co v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116

By:

In a judgment handed down on 5 August 2020, the Federal Court has confirmed that ignoring foreign arbitral proceedings in the hope that they will simply go away will not prevent the subsequent arbitral award from being enforced against you, even in circumstances where the arbitral proceedings were not conducted in accordance with the contractual procedure.

In Energy City Qatar Holding Co v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116, Energy City Qatar (ECQ) sought to enforce a Qatari arbitral award rendered pursuant to an arbitration clause in a contract between ECQ and Hub Street Equipment (Hub) for the supply and installation of street lighting and street furniture in Energy City. The dispute concerned an advance payment made by ECQ to Hub under the contract, which ECQ subsequently sought to recover after deciding not to proceed with the contract. After various email communications and meetings in which ECQ sought repayment of the money, Hub informed ECQ that it would identify its position after obtaining legal advice. However, Hub never communicated with ECQ again and continued to retain the advance payment.

ECQ commenced arbitral proceedings under the contract to recover the advance payment. While the arbitration clause required ECQ to send a notice to Hub giving Hub 45 days to appoint one member of the arbitral tribunal, ECQ instead filed a statement of claim in the Qatari Plenary Court of First Instance seeking orders that the Court appoint an arbitral tribunal of three arbitrators including an arbitrator nominated by ECQ. The Qatari Civil and Commercial Code of Procedure (CCCP) allowed for arbitrators to be appointed in this manner in circumstances where “a dispute arises between the parties prior to an agreement between them as to the arbitrators…”.

ECQ sent a notice of the Court proceedings to Hub, and once constituted, the Tribunal sent six notices in English to Hub about the conduct of the arbitration. Despite the notices, Hub did not participate in the arbitration, and the Tribunal adjourned the proceedings on three occasions due to Hub’s failure to attend. As there was never any appearance by Hub, the Tribunal proceeded to determine the dispute and make the award. Importantly, Jagot J made a number of factual findings that Hub had in fact received the notices from the Tribunal, but decided to ignore the arbitral proceedings.

Hub challenged the enforcement of the award on a number of grounds under the International Arbitration Act 1974 (Cth) (IAA), including that:

  1. it did not receive proper notice of the appointment of the arbitrator giving it a period of 45 days in which to appoint an arbitrator: s (8)(5)(c) of the IAA;
  2. it did not receive proper notice of the arbitration proceedings as it did not in fact receive any notice of those proceedings: s 8(5)(c) of the IAA;
  3. it was unable to present its case in the arbitration proceedings as it never in fact received notice of those proceedings: s 8(5)(c) of the IAA;
  4. the composition of the arbitral authority was not in accordance with the agreement of the parties as the contractual process had not been followed: s 8(5)(e) of the IAA;
  5. the arbitral procedure was not in accordance with the agreement of the parties as the contract provided for the arbitration to be conducted in English and it was in fact conducted in Arabic and the award was issued in Arabic: s 8(5)(e) of the IAA; and
  6. the arbitral award involved a breach of the rules of natural justice and thus the award should not be enforced as it would be contrary to public policy to do so: ss 8(7) and 8(7A)(b) of the IAA.

Due to the factual findings that Hub had received the notices before any substantive step was taken in the arbitration, and thus had been given an adequate opportunity to present its case but chose not to do so, Jagot J dismissed arguments (2), (3) and (6). Justice Jagot also quickly dismissed argument (5) because, even though the arbitration should have been conducted in English, Hub had decided to take no part in the arbitration despite knowing that it was being conducted. Having done so, Hub suffered no prejudice due to the fact that the arbitral proceedings were conducted in Arabic, or that the award was issued in Arabic.

As such, the primary issue for consideration was whether the award should not be enforced because the Tribunal was not constituted in accordance with the contract. Importantly, the contract and the conduct and validity of the arbitration were governed by the law of Qatar. In deciding to appoint the arbitral tribunal, the Qatari Plenary Court of First Instance applied the Qatari CCCP and was satisfied that a dispute had arisen between ECQ and Hub prior to an agreement between them as to the arbitrators. Whether or not this was the case, Hub had not proved that according to Qatari law, the CCCP did not apply to the circumstances of the case.  On this basis, Jagot J was not satisfied that the composition of the Tribunal was not in accordance with the agreement of parties. Accordingly, ECQ’s application to enforce the award was granted.

The judgment demonstrates that courts in Australia will take a pro-arbitration approach when deciding to enforce foreign arbitral awards, even in certain circumstances where there are alleged procedural irregularities with the arbitral proceedings or award. In this case, it was important that the procedural irregularities had not caused any prejudice to Hub, as it had been given an adequate opportunity to present its case but had chosen not to do so.

This is also an important reminder that parties cannot bury their heads in the sand when it comes to foreign arbitral proceedings and attempt to challenge the enforcement of an award later down the track. The commencement of any arbitral proceedings needs to be taken seriously or parties could find themselves facing enforcement action in relation to arbitral proceedings which they did not take part in.