The importance of electing a supervisory law for international arbitration

The importance of electing a supervisory law for international arbitration

Wagners Nouvelle Caledonie Sarl v Vale Inco Nouvelle Caledonie SAS [2010] QCA 219, Queensland Court of Appeal, McMurdo P, Muir JA and White JA, 20 August 2010

(a) Summary

This case stands for the proposition that where parties to a commercial contract wish to exclude the operation of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) by nominating an alternate system of arbitral rules, it is vital that the rules adopted or the contract itself contain provisions regarding the supervisory law that applies to the arbitration where the rules adopted are simply procedural in nature.

In this case, the Appellant and the Respondent disagreed as to whether the Model Law applied to arbitral proceedings, despite the fact it had been provided for in the contract between them (the Contract) that the UNCITRAL Arbitration Rules (the UAR) would govern such proceedings. Whether the Model Law applied was the ultimate question and would influence the subsidiary question of whether a principle contained in the decision of the Queensland Court of Appeal in Australian Granites Limited v Eisenwerk Hensel Bayreuth Dipl-lng GmbH (2001) 1 Qd R 461 (the Eisenwerk Case) was distinguishable. The Eisenwerk Case found that “by expressly opting for one well known form of arbitration, the parties sufficiently showed an intention not to adopt or be bound by any quite different system of arbitration, such as the Model Law” (the Eisenwerk Principle). Further, if the answer to this question was “no”, then the court was to determine if the Eisenwerk Principle was correctly decided.

The court held that clause 8.17 was not sufficient to displace the Model Law in settling any dispute between the parties, as this clause alone did not sufficiently demonstrate that it was the intention of the parties to settle any disputes otherwise than in accordance with the Model Law. Of particular importance was that the UAR, unlike the Model Law, are silent on the important issue of the role of the courts and the supervisory law. Further, the Model Law and the UAR are capable of operating together. The Model Law also provides that the parties are free to adopt procedural rules, such as the UAR, to be followed by the arbitral tribunal. As the court determined that the operation of the Model Law had not been displaced, it was further found that it was inappropriate to decide whether the Eisenwerk Principle was distinguishable or whether it had been correctly decided.

(b) Facts

Clause 8.17 of the Contract provided “any dispute or difference whatsoever arising out of or in connection with this contract shall be and is hereby submitted to arbitration in accordance with and subject to the [UAR].” When the Respondent gave the Appellant a Notice of Arbitration, a dispute arose as to whether the parties had sufficiently demonstrated an intention “that any dispute that has arisen or may arise between them is to be settled otherwise than in accordance with the Model Law” within the meaning of section 21 of the International Arbitration Act 1974 (Cth) (the Act) due to the wording of clause 8.17 of the Contract.

The Appellant argued that the express selection of the UAR imported an agreement between the parties to have the dispute settled otherwise than in accordance with the Model Law for the following reasons:

The UAR establish a regime distinct from the Model Law.

The UAR provide a comprehensive framework for the establishment of a tribunal, the conduct of the proceedings and the making of a final and binding award and can therefore stand on their own.

The Eisenwerk Principle applies in this case and should not be overruled unless the court found that the decision in the Eisenwerk Case was clearly incorrect.

There are differences and incompatibilities between the Model Law and the UAR, suggesting that the two systems could not operate together.

The Respondent argued that the parties had not expressed a sufficiently clear intention to settle any disputes otherwise than in accordance with the Model Law because:

The UAR and the Model Law can operate in tandem and the adoption of the UAR in clause 8.17 of the Contract falls short of conveying an unambiguous intention to displace the model law.

No agreement to displace the Model Law should be inferred as the UAR are silent on a critical element of international arbitration, the supervisory law and the role of the courts.

Section 21 of the Act contemplates a like-for-like substitution of the Model Law for rules of the same genus, which the UAR are not.

The respondent noted that the UAR largely concern aspects of arbitral procedure governing the conduct and organisation of the proceeding and do not fulfil the role of a national law on arbitration. They are silent on the role of the courts. The purpose of the Model Law is fundamentally different, as it offers a system of national law governing international commercial arbitration and sets out the role of the courts. Commentary suggests that the two systems were intended to operate together within the one framework.

(c) Decision

Muir JA wrote the principal judgment in this case, with which McMurdo P and White JA concurred.

(i) Had the Model Law been displaced by clause 8.17 of the Contract?

The court found that whether the parties had agreed that any dispute between them should be settled otherwise than in accordance with the Model Law depended on the construction of clause 8.17 of the Contract.

The court found its role was to ascertain and give effect to the intentions of the contracting parties that a reasonable person with the level of the knowledge of the parties would have perceived when paying regard to the Contract itself, the purpose and object of the transaction and the surrounding circumstances. Muir JA noted that as neither the background of the Contract, nor its terms and conditions had been provided to the court, the court would have to interpret the Contract in an ‘unusual and sterile nature’.

The role, construction, or legal categorisation of the Model Law, the consequences of opting out of the Model Law and the intentions of Parliament in giving the Model Law the force of law in Australia were not the basis of determination. However, many of the matters relied on by the respondent were relevant to the construction of the Contract, as they form the background against which the contract was made.

The fact that neither the UAR nor clause 8.17 of the Contract referenced the choice of supervisory law was significant. While the Model Law provides a supervisory law for arbitrations and if adopted, becomes the controlling lex arbitri for international commercial arbitrations where the judicial seat is that of the adopting state, the UAR are procedural in nature and are not the law of a nation or state. As this is a vital issue for international arbitration proceedings, this is an argument that strongly suggests that the Model Law has not been displaced.

Further, the Model Law and the UAR are capable of operating together. This has been evidenced in a significant amount of commentary, most notably the second reading speech for the International Arbitration Bill and the Rules of the Australian Centre for International Commercial Arbitration (which are similar to the UAR) and provide in rule 2.3 that “[b]y selecting these Rules the parties do not intend to exclude the operation of the UNCITRAL Model Law”.

Muir JA also noted that although Counsel for the Appellant drew attention to the inconsistencies between the Model Law and the UAR, it was never suggested that they could not be read together, nor that there would be difficulty in determining which provisions of the Model Law would be given precedence where inconsistencies between the Model Law and the UAR arose. Additionally, Articles 19 and 2(d) and (e) of the Model Law have the effect of allowing the parties to adopt different procedural rules, even where the Model Law applies, and to resolve any conflict arising between the two sets of rules. For all these reasons, clause 8.17 of the Contract did not manifest an intention that the Model Law should cease to apply.

(ii) The Eisenwerk Principle

The parties adopted the UAR in this case; the Rules of Conciliation and Arbitration of the International Chamber of Commerce (the ICC Rules) were adopted in the Eisenwerk Case. The court found that as it was important to determine the intentions of the parties paying regard to the surrounding circumstances of the case, two identical arbitration clauses may be construed completely differently if the circumstances were significantly dissimilar. With the passage of time, circumstances may change also and this would further impact on the intentions of the parties as the court may interpret them. For this reason, the fact that the Eisenwerk Case found that the Model Law had been displaced when the parties adopted the ICC Rules was not conclusive. Muir JA considered that it was a case determining a matter of contractual construction, rather than setting out a general principle of law.

There are also significant differences between the ICC Rules and the UAR. Importantly, the ICC Rules establish the International Court of Arbitration and contain a provision for the supervisory role for the International Court of Arbitration. The UAR have no such effect. White JA also added to the reasoning of Muir JA, stating that due to the differences between the ICC Rules and other arbitral rules, the Eisenwerk Principle should not be interpreted to mean that the adoption of any other arbitral procedural rules should lead to the conclusion that the parties have decided to have their dispute settled under a supervisory law other than the Model Law. Further, as the Eisenwerk Case concerned the collision between the Model Law and the Act on entitlements to stay proceedings and subsequent decisions have found that the Model Law and the Act contain independent operative provisions when stays are concerned, the applicability of the Eisenwerk Case in the future may be questionable.

The court therefore found that it was not appropriate to determine if the Eisenwerk Principle was distinguishable, nor whether the Eisenwerk Principle had been correctly determined.

 

Co-authored by Olivia Draudins.

Published by SAI Global on behalf of Centre for Corporate Law and Securities Regulation, Faculty of Law, the University of Melbourne with the support of the Australian Securities and Investments Commission, the Australian Securities Exchange and the leading law firms.