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Focus: 'Urgent relief' from the court under an arbitration agreement

29 March 2010

In brief: A Victorian Court of Appeal decision, which granted a stay of court proceedings so that a dispute could be referred to arbitration, has provided further support for the view that Australia is an 'arbitration friendly' jurisdiction. Partner Andrea Martignoni (view CV), Special Counsel Nicola Nygh (view CV) and Lawyers Sam Luttrell and Mark Hare report.

How does it affect you?

The Court of Appeal's decision in AED Oil Limited & Anor v Puffin FPSO Limited [2010] VSCA 37 concerns the interpretation of an international arbitration agreement. Arbitration agreements are often included in contracts involving parties from different jurisdictions particularly contracts for international construction and infrastructure projects. This decision will be of interest to users of arbitration for three reasons:

  • First, the decision indicates that if a party seeks to rely on a clause which permits that party to apply to a court for 'urgent relief' as an exception to a general obligation to arbitrate, Australian courts are likely to interpret 'urgent' narrowly and closely analyse evidence used to demonstrate the urgency of such an application.
  • Second, the decision suggests that declaratory awards by arbitrators are likely to be enforceable in Australia provided the terms of the award are sufficiently clear and the declaration finally resolves a matter in dispute.
  • Finally, it is one of the first arbitration decisions to have emerged following the introduction in February 2010 of arbitration lists in the Supreme Courts of New South Wales and Victoria and in the Federal Court of Australia. This is positive for the development of arbitration jurisprudence in Australia.

Background

In December 2009, we commented on a case in the Supreme Court of Victoria which considered whether a dispute arising under an indemnity for tax liabilities was arbitrable. The case was appealed.

In allowing the appeal and granting a stay of court proceedings so that the dispute may be referred to arbitration, the Victorian Court of Appeal has provided evidence for the view that Australia is a 'friendly' jurisdiction for arbitration.

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Facts

AED Services (incorporated in Singapore) and Puffin (incorporated in Malta) were parties to a charter contract for an oil exploration project. AED Oil (incorporated in Australia) guaranteed AED Services' obligations under the charter contract.

Under the charter contract:

  • AED Services indemnified Puffin's tax liabilities arising from the project;
  • the parties agreed to submit disputes to arbitration; and
  • there was a subclause within the arbitration agreement that permitted a party to seek urgent interlocutory or declaratory relief from a court where, in that party's reasonable opinion, that action was necessary to protect its rights (clause 33.10).

A dispute arose between Puffin and the AED companies about the amount of Puffin's tax liabilities.

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Proceedings

In the principal proceedings brought against Puffin, AED Services sought, and was granted, an injunction restraining Puffin from exercising its power to appoint a receiver to the assets of AED Oil under a charge in favour of Puffin. The charge was to secure the obligations of AED Oil as guarantor of performance by AED Services under the charter contract.

By way of defence and counterclaim filed after the injunction was granted, Puffin sought declarations that:

  • AED Services had unreasonably withheld its consent to inter alia Puffin filing an income tax return, lodging business activity statements and paying GST; and
  • AED Services was liable to indemnify Puffin's tax liabilities.

AED Services and AED Oil applied for a stay of the counterclaims on the basis of an arbitration clause in the charter contract.

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Trial judge decision

At first instance, Justice Judd:

  • upheld Puffin's argument that its counterclaims were sufficiently 'urgent' as to be captured by clause 33.10, which permitted a party to apply to a court for interlocutory or declaratory relief; and
  • by way of obiter, indicated that where a tax dispute is essentially contractual in nature, the dispute is likely to be capable of settlement by arbitration.

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Court of Appeal decision

The Court of Appeal, comprised of Appeal Justices Buchanan and Bongiorno and Acting Appeal Justice Croft, upheld the AED parties' argument that Puffin's counterclaims were not relevantly 'urgent' and therefore not captured by clause 33.10.

In allowing the AED parties' appeal and granting a stay of the proceedings in order that the dispute may be referred to arbitration, the Court of Appeal:

  • disagreed with the trial judge's conclusion that Puffin's counterclaims were urgent. In this regard, the Court of Appeal:
    • closely analysed Puffin's evidence about the urgency of its counterclaims;
    • placed weight on the fact that Puffin had not made any claim in relation to its tax liabilities until September 2009 (in response to AED Oil's claim), despite receiving advice from tax advisers in October 2007 about those tax liabilities;
    • concluded that AED Oil's financial position was not deteriorating to such an extent that Puffin's claims against it could be prejudiced;
  • in obiter, referred approvingly to authorities that provide support for the view that declaratory awards by arbitrators are enforceable; and
  • rejected Puffin's contention that clause 33.10 should be construed having regard to English authorities that cast doubt on the enforceability of a declaration contained in an arbitral award.

In closely analysing the evidence adduced by Puffin in support of its contention that its counterclaims were sufficiently 'urgent' to allow it to prosecute those claims in court, the Court of Appeal has confirmed the current trend of Australian courts of interpreting the grounds upon which a party may resist a stay application under the International Arbitration Act 1974 (Cth) narrowly.

It is significant that Justice Croft, who was recently appointed Judge in Charge of the Victorian Arbitration List, sat as an acting appeal judge in this case. Arbitration lists have been established in the Supreme courts of New South Wales and Victoria and the Federal Court of Australia in order to ensure a more nationally consistent approach to arbitration by Australian courts. The appointment of arbitration experts such as Justice Croft to the bench bodes well for the effectiveness of the arbitration list model.

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