An Australian court's decision to enforce a foreign arbitral award made in China is a reminder for Australian parties who enter into arbitration agreements with foreign parties that there can be serious consequences if they ignore a notice of arbitration (even where that notice and/or consequential arbitral proceedings are conducted in a foreign language).

International commercial arbitration in Australia is governed by the International Arbitration Act 1974 (Cth) (IAA). Under this Act, both the State Supreme Courts and the Federal Court of Australia have jurisdiction to make orders recognising and enforcing foreign arbitral awards. These courts are increasingly being asked to recognise awards made at foreign seats, and are doing so in a manner which is consistent with the objects of the IAA, being, inter alia, to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes and to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce. (1)

Justice Stein of the Supreme Court of South Australia recently made orders recognising an award made in Nantong, China, under the rules of the Chinese International Economic and Trade Arbitration Commission (CIETAC Rules). (2) 

The award

The award creditor was Nantong Drayson Composite Material Co Ltd (Nantong Drayson). The respondent was Greyco Pty Ltd (Greyco). Nantong Drayson and Greyco had entered into an agreement relating to the supply by Nantong Drayson of goods to Greyco. Greyco failed to make payment under the terms of that agreement. Pursuant to the award, Greyco was ordered to pay Nantong Drayson the sum of US$229,885.03 and liquidated damages for overdue payment.

The award was made by a single arbitrator. Greyco did not participate in the arbitration proceeding. 

The CIETAC Rules expressly authorise an arbitrator to proceed with an arbitration if the Respondent fails to appear at an oral hearing without showing sufficient cause. (3)

The application for enforcement

Nantong Drayson's application to enforce the award was filed with the Supreme Court of South Australia in March 2023. 

Greyco's solicitor appeared in the proceeding to resist recognition and enforcement. Those solicitors subsequently withdrew and a director of Greyco made submissions on its behalf, including that he considered the arbitration process unfair, he did not appreciate the significance of it and at the time of the arbitration he was trying to negotiate with Nantong Drayson. The director also filed an affidavit in support of his submissions.

Nantong Drayson's submissions were that all pre-requisites for recognition and enforcement of the award under the IAA had been filed with the court and it relied on the limited bases on which a court may refuse to enforce under that Act. Stein J was satisfied that the contract between the parties and the award were duly authenticated and certified and that the English translation of the award provided by the plaintiff met the requirements of the IAA.

The Court's analysis

Having regard to the objects and provisions of the IAA and to the New York Convention (to which both Australia and the People's Republic of China are parties), her Honour observed that:

"The starting point of the IAA is that the Award must be enforced and I may only refuse to enforce the Award if the respondent establishes one or more of the matters provided for in ss 8(5) or 8(7) of the IAA." (4)

Her Honour observed further that although certain matters had been raised by the Greyco director in affidavits filed in the proceeding, those matters (including assertions as to defects in goods supplied) "would not warrant a refusal to register and enforce the Award given the provisions of the IAA and the nature of the matters for consideration on an application for registration and enforcement". (5)

Stein J specifically noted that Greyco's failure to take part in the arbitral proceedings did not result from any failure on the part of the tribunal to accord procedural fairness. (6)

Orders were made for the award to be registered as a judgment of the Court (with a related order that the quantum of the award be converted to Australian dollars at the exchange rate published by the Reserve Bank of Australia one business day before the making of the order).

Observations

It is not unusual for arbitral proceedings to proceed with intermittent or no participation by a respondent party. 

Under the provisions of the IAA, this is not a relevant consideration for the court in making orders for recognition and enforcement of the subsequent arbitral award unless the respondent's non participation is contrary to public policy (which specifically includes a breach of the rules of natural justice). 

In this case, Greyco's submissions and evidence at the hearing of the application for enforcement concerned matters outside of the circumstances set out in the IAA which prescribes exclusively the bases upon which a court may refuse enforcement.

(1) IAA, s 2D

(2) Nantong Drayson Composite Material Co Ltd v GreycoPty Ltd [2023] SASC 52

(3) Article39, CIETAC Rules

(4) At[32]

(5) At[34]

(6) At[34]