Case Note: Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company
 FCAFC 110
The Full Court of the Federal Court considers an application for enforcement of a foreign arbitral award in circumstances where the procedure for the appointment of the arbitral tribunal in the arbitration agreement was not followed.
Energy City Qatar Holding Company (ECQ) and Hub Street Equipment Pty Ltd (Hub) entered into a contract by which Hub agreed to supply and install street light equipment and accessories in Doha, Qatar. ECQ made an advance payment to Hub. It later determined not to proceed with the contract and sought to recover of the advance payment. Hub failed to repay the amount advanced.
The contract was subject to the law of Qatar. It provided that the language of the contract was to be English. The contract contained an arbitration clause which required that any dispute be referred to arbitration before a three-member tribunal, one member being appointed by each party within 45 days of that party receiving a notice of the commencement of the arbitration, and the third member to be mutually chosen by the first two appointees. The arbitration clause also provided that if a decision on the third member could not be reached by the party appointees within 28 days, the appointment of the third arbitrator was to be referred to a competent Qatari court.
ECQ did not give notice to Hub under the arbitration clause of the appointment of its arbitrator. Rather, ECQ approached a court in Qatar and obtained orders for the appointment of a three-member tribunal from the court. Hub received notice of the Qatari proceeding seeking the appointment of the tribual, but did not participate in that proceeding.
The arbitral tribunal proceeded to hear the dispute. Hub did not participate in the arbitration; however, notice of the arbitration was given to it on several occasions. The arbitral tribunal issued an award which found in favour of ECQ and required Hub to repay the money advanced together with compensation and costs.
ECQ applied to the Federal Court of Australia for enforcement of the award under
s. 8(3) of the International Arbitration Act 1974 (Cth) (IAA). Hub resisted enforcement on two main grounds. It argued that:
(a) the composition of the tribunal was not in accordance with the agreement of the parties; and
(b)the failure to conduct the arbitration in English was a fundamental departure from the agreed procedure for the arbitration, and this was a matter which should be taken into account in the exercise of the discretion to enforce the award.
At first instance, the trial judge rejected Hub’s grounds for resisting enforcement. The Full Court of the Federal Court overturned that decision and refused to enforce the award. The principal judgment was given by Stewart J with whom Allsop CJ and Middleton J agreed.
Defective appointment of the tribunal
Stewart J identified that the Qatari court proceeded on a misapprehension as to fact. The Qatari court had been advised, or had understood, that Hub was notified of the appointment of the arbitrator by ECQ and had failed to respond. The court made the appointment of the arbitral tribunal on that basis.1 However, this was not the case. ECQ had not followed the agreed procedure for appointment. It had instead gone to the court prematurely seeking appointment of the arbitral tribunal by the court without notifying Hub and without giving Hub the opportunity to make its own appointment to the arbitral tribunal. ECQ’s conduct in obtaining an appointment from the Qatari court mean that the appointment of the arbitral tribunal was completed in a way which was contrary to the procedures provided for in the arbitration agreement.
In considering the evidence relating to the appointment of the arbitral tribunal, Stewart J took the opportunity to review the evidentiary standard which a party must meet when resisting enforcement of a foreign arbitral award. His Honour noted that s. 8 of the IAA was based upon, and gave effect to, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards which has been described as having a pro-enforcement bias. However, this did not translate into a shift in the evidentiary standard when resisting enforcement of an arbitral award. His Honour referred to the joint judgment of Hansen JA and Kyrou AJA in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2013) 38 VR 303 and concluded that the evidentiary standard in an application under s. 8(5) and (7) of the IAA was on the balance of probabilities.2 Stewart J stated at :
“I respectfully agree with the joint judgment that the IAA neither expressly nor by necessary implication provides that the standard of proof under ss 8(5) and (7) is anything other than the balance of probabilities as ordinarily applied in a civil case. The point about the IAA having a pro-enforcement bias is that the grounds upon which enforcement may be resisted are finite and narrow, and not that they must be established to a standard that is higher than the ordinary standard. This is also the approach that better accords with that followed internationally.”
His Honour concluded that Hub had established that the appointment procedure was not in accordance with the agreement of the parties as ECQ had taken steps to seek an appointment from the Qatari court when the arbitration agreement required ECQ given notice of its appointee to Hub and provide Hub with the opportunity to make its own appointment to the arbitral tribunal.
Should Hub have applied to set aside the award at the seat?
ECQ argued that Hub’s remedy for a defect in the appointment of procedure was to apply to the court in the seat of the arbitration to set aside the appointment. That submission was rejected.
Stewart J confirmed that both the text and structure of the New York Convention and the Model Law, as well as established authority, all confirmed that the award debtor was not required to take positive steps at the seat to set aside an award. The award debtor may instead wait until steps are taken in its own jurisdiction to enforce the award. This position was recognised in Dallah Real Estate & Tourism Co v Ministry of Religious Affairs of the Government of Pakistan  UKSC 46 at  and  and in the majority judgment in IMC Aviation at .
However, the position was fundamentally different if the court in the seat had rejected a challenge to the award. Stewart J concluded that, in these circumstances, the enforcement court should generally not reach a different conclusion on the same question. Some exceptions were identified by His Honour to this general rule; however, these arise only in limited cases. Examples include where the powers of the court of the seat are limited and prevent the court from intervening, or where the award was “attended by such a grave departure from the basic concepts of justice as applied by the court of enforcement that the award should not be enforced”.3 In the vast majority cases, therefore, an unsuccessful attempt to set aside the award at court of the seat will limit the options available to the award debtor when resisting enforcement of the award.
Discretionary enforcement of the award
Having found that Hub had established that a ground for refusing enforcement under s. 8(5)(e) of the IAA existed, Stewart J went on to consider whether the award should nonetheless be enforced in the exercise of the court’s discretion.
Hub submitted that the fact that the tribunal was prematurely constituted by the Qatari Court and the fact that the arbitration proceedings had been conducted in Arabic rather than in English as the language of the contract, were strong reasons which militated against the exercise the discretion to enforce the award.
Stewart J noted that s. 8 of the IAA provided that the court “may” refuse to enforce the award if particular circumstances were established. This language suggested that a residual discretion existed to enforce the award even where one of more of the statutory grounds for refusing enforcement had been established. His Honour observed that there was no authorative statement of the nature of that discretion in Australian case law. Reference was made to several international authorities which had considered the ambit of this discretion. These were Dardana Ltd v Yukos Oil Co  EWCA Civ 543, Hebei Import & Export Corporation v Polytek Engineering Co Ltd  HKCFA 40, Astro Nusantara International B.V. v PT Ayunda Prima Mitra  HKCFA 12 and Dallah Real Estate & Tourism Co v Ministry of Religious Affairs of the Government of Pakistan  UKSC 46. Stewart J recognised that a discretion to enforce the award existed even where grounds for non-enforcement were made out.4
“As already identified, the New York Convention has a pro-enforcement bias. That finds expression in the narrow and limited grounds for non-enforcement which the award debtor must establish. There is, however, 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.”
The ambit of the discretion was not defined. Nonetheless, from His Honour’s reasons it is plain that the way in which the discretion will be exercised will depend on the prejudice which can be identified as a consequence of establishing one of the grounds for non-enforcement.
Stewart J found that the fact that the arbitration proceedings had been conducted in Arabic created no prejudice for Hub. This was because Hub did not participate in the arbitration. Had this been the only matter relevant to the exercise of the discretion, His Honour would have enforced the award notwithstanding any irregularity. However, different considerations applied to the departure from the procedure for appointment of the arbitral tribunal required by the arbitration clause. His Honour found that the fact that the composition of the arbitral tribunal was not in accordance with the agreement of the parties was a matter which “strikes at the very heart of the tribunal’s jurisdiction”. It was a matter described as fundamental, and it provided sufficient grounds for His Honour not to exercise the discretion to enforce the award.
In the result, Hub was successful in resisting enforcement.
Take away points
There are at least two take away points arising from the decision.
The decision emphasises the need to ensure that the appointment of the arbitral tribunal is carried out in accordance with the procedure set out in the arbitration agreement. This is a fundamental matter for any arbitration. Failing to precisely follow the appointment procedure is a matter which has the potential to undermine the conduct of the arbitration. ECQ did not follow the procedure in the arbitration agreement. It proceeded with an arbitration which was not commenced properly and incurred the costs of its own legal team and those of the arbitrators. Several years later, ECQ found that the award which it had obtained could not be enforced in the jurisdiction of the award debtor. On any view of the facts, that was a poor outcome for ECQ. It was an outcome which could have been avoided if the appointment procedure in the arbitration agreement had been followed.
The decision also provides some useful guidance for those advising an award debtor. An award debtor who has grounds to resist the enforcement of an award will, in most cases, be better advised to wait for enforcement steps to be taken in its own jurisdiction rather than seeking to set aside the award in the seat of the arbitration. The decision suggests that, if an award debtor is unsuccessful in trying to set aside an award in the seat of the arbitration, this will, in all likelihood, limit its options to resist enforcement of the award. This is because it will “generally be inappropriate for the enforcement court of a Convention country to reach a different conclusion on the same question of asserted defects in the award as that reached by the court of the seat of the arbitration”.5 Given the choice between setting aside an award in a foreign jurisdiction or waiting for enforcement steps to be taken in the award debtor’s jurisdiction, it will in many cases be preferable to raise all available arguments about irregularities of the award in the award debtor’s jurisdiction at the time of enforcement.
1  FCAFC 110  – .
2 Ibid  – .
3 Ibid .
4 Ibid .
5 Ibid .