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Australia to update its international arbitration laws

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Amendments to the International Arbitration Act 1974 (Cth) (“IAA”) were passed on 17 June 2010. These reforms will result in Australia adopting a clearer and more efficient framework for international arbitration based on international standards, while strengthening judicial support for this process.

The relevance of international arbitration

Often, parties to a cross border transaction are reluctant to submit to the jurisdiction of the other party’s home courts, for reasons such as unfamiliarity, costs or perceived bias.  As such, arbitration is often seen as a useful tool for managing and resolving cross-border commercial disputes.  The process affords a much greater deal of flexibility, with parties able to set out parameters such as the location for dispute resolution and the selection of arbitrators.  It also usually offers faster and more cost effective resolution and can be tailored to suit the situation of the parties.

The amendments

The reforms arise from a recent agreement amongst Australian governments to adopt a uniform approach based on the United Nations Commission on International Trade Law model for international commercial arbitration. Overall, there is a push to bring Australia up to date with international practice and make it a more attractive location to host international commercial arbitrations.

Some of the changes to the IAA include:

  • The IAA will be the exclusive law which governs international commercial arbitration in Australia. This change will provide much needed certainty, as previously State or Territory Acts had also been capable of being applied to international arbitration.
  • There are now limited grounds on which a court can refuse the enforcement of an award from arbitration, which provides greater certainty to parties that the results of arbitration will be final, if so intended.
  • A tribunal will have a wide discretion to make interim orders, for example to preserve assets. These orders will generally be recognised and enforced by Australian courts, regardless of where they are issued.

What it means for you

Companies should assess, or re-assess, the implications of arbitration clauses in their international contracts.  Changes may be needed to preserve the right to arbitrate and the content of the agreement should reflect certain aspects of the IAA.

Whether an arbitration clause is indeed the best option should also be considered.  While an arbitral award is now easier to enforce, the scope to challenge one is now far narrower.  This means the reforms will not necessarily benefit everyone.  A company that desires the right to invite judicial scrutiny will need to consider whether they should be agreeing to arbitration at all.  Those electing not to include an arbitration clause should focus more attention on alternative methods of enforcing their contractual rights.

If you require advice about your existing arrangements, or whether or not an arbitration clause is an appropriate tool in your situation, please contact one of our Corporate Advisory lawyers.

Author: Darren Sommers