International Commercial Arbitration Conference Address
International Commercial Arbitration Conference: Opening Address
Address By The Honourable J J Spigelman AC
Chief Justice Of New South Wales
To The Joint Conference Of ACICA and ACLA
SYDNEY, 10 AUGUST 2007
I have had a number of opportunities over recent years to express my support for the process of international commercial arbitration. One such invitation also came from ACICA in a similar role to which I find myself today, at the Inaugural Conference of the Asia Pacific Regional Arbitration Group (“APRAG”) which brought together arbitral institutions from throughout the region. That conference, like the present conference, manifests the vitality of this international system for commercial dispute resolution.
The multi-faceted process known as globalisation has brought with it a widespread recognition of the benefits potentially available from reducing national barriers to mutually advantageous exchange by trade and investment. The rapid expansion of such commercial interaction inevitably brings with it the need for dispute resolution.
One of the non-tariff barriers to international trade and investment, being barriers which impede such mutually beneficial exchange to a greater degree than domestic trade and investment, arises from the transaction costs and uncertainties involved in international dispute resolution. Lawyers and other practitioners in this field can make a significant contribution to reducing such non-tariff barriers and, thereby, improve the economic welfare of all those who benefit from trade and investment.
The coherent international system for resolving commercial disputes that has been devised in the interlocked provisions of the UNCITRAL Model Law on International Commercial Arbitration, the New York Convention for Enforcement of Arbitral Awards and the Washington Convention for Investment Disputes, plays an essential role in this process. These international instruments are, as this audience is well aware, so widely adopted that they facilitate international commerce to a substantial degree.
Nothing remotely comparable to this international system for enforcement of arbitral awards exists with respect to enforcement or judgments of courts. There have been numerous attempts to develop some kind of system for enforcement of judgments and they have all failed. I cannot see this situation changing. The Hague Convention gave up on its attempts to devise such a system but did produce a Convention on Choice of Court Agreements two years ago. No state has yet acceded to this Convention and only one has signed. That delay arises because, as I understand the position, it is usual for states to await the Hague Conference issuing a detailed Explanatory Report. That was published only a few months ago.
This Convention creates a regime in which states agree to enforce commercial arrangements pursuant to which parties choose a court to have jurisdiction. The Convention on Choice of Court Agreements has the same core justification as the New York Convention with respect to arbitral awards. Parties to a commercial contract have chosen a jurisdiction. The autonomy of the parties should be respected for the same reasons that that has been accepted by the large number of nations that have adopted the New York Convention.
It will be interesting to see whether nations approach this Convention as if it were an application of the commercial autonomy of the parties who have chosen a specific forum for resolution of disputes, or whether the element of national sovereignty involved with the formal courts will lead nations to adopt the traditional territorial approach that has bedevilled any attempt to produce a regime for enforcement of judgments.
Issues of national sovereignty remain the dominant theme whenever the institutions of one nation are faced with the exercise of the sovereign power of another nation as manifest in the courts of that other nation. In contrast, the international community has, to a significant extent, been prepared to set aside the capacity of nation states to interfere with international commerce in favour of giving respect to the choices made by parties to international commercial transactions involving arbitrations.
It is well to remember that this abdication of formal power is accepted throughout the world only on the basis that it serves the interests of each nation that participates in such a system. Reciprocity is at the heart of this international deal. Each such nation has accepted that it is in its interests to behave in this manner, in order to receive for its citizens and corporations the benefits of other nations behaving in the same manner. There is no law of nature which says that this form of enlightened self-interest will continue.
In the world before World War I, when international communications had been revolutionised by wireless telegraphy over international cable connections and a substantial decline in transportation costs, the benefits of globalisation were as obvious as we believe them to be today. That globalised world changed very quickly into war and national autarky, at great cost. No-one should assume a similar regression is impossible today.
For all of those who are involved as practitioners in the resolution of international commercial disputes, whether as lawyers or arbitrators or judges, the contribution that we can make to the maintenance of the system is twofold. First, to ensure that the public and political decision-makers are aware of the benefits of the system. Secondly, to ensure that the system actually delivers the benefits of which it is capable.
The costs and uncertainties of international commercial dispute resolution are capable of being minimised, and brought into some kind of reasonable relationship with the costs and uncertainties of domestic commercial dispute resolution, only if all of us who are involved in the process are committed to the just, quick and cheap resolution of such disputes.
Business lawyers have been described as “transaction cost engineers” who facilitate commercial intercourse by reducing future transaction costs. Well drafted commercial arrangements avoid conflict with regulatory regimes, anticipate and therefore avoid disputes and create structures for dealing with the unknown or the unanticipated. By such involvement transaction lawyers add value to commercial transactions. The same is true of dispute resolution processes.
The cost structure of most economic activity has been transformed over recent decades by new management techniques, by technology and by the reduction in barriers to trade through microeconomic reform, both domestic and international. Lawyers are not and will not be immune to these pressures. The same is true of commercial arbitrators.
Both lawyers and arbitrators must be seen to deliver a cost effective service or they may very well find themselves bypassed by the requirements of commerce. Judges as well as arbitrators must be sensitive to the costs that the procedures for dispute resolution impose upon the parties. That is particularly the case in international commerce, the benefits of which can be substantially undermined by the transaction costs that arise whenever something goes wrong.
I know that many believe that commercial arbitration mimics court processes too often and to a greater extent than it should. This restricts to a significant degree the extent to which arbitration delivers in fact on its potential to be cost effective. Generally speaking, in the jurisdictions with which I am familiar, I see little evidence that commercial arbitration is in fact quicker and cheaper than decision-making processes by commercial judges. It is possible for it to be so but it does not seem to happen as much as it should.
The international regime for commercial arbitration does have one advantage because it avoids the proclivity to engage in venue disputation that has bedevilled such litigation in Australia, England and North America, but not yet elsewhere. The burgeoning case law on anti-suit injunctions and then anti-anti-suit injunctions and, inevitably, anti-anti-anti-suit injunctions, reflects the simple proposition that when it comes to the procedure of courts and the quality of judiciaries, parties believe that where a case is determined matters. This is so even if the disputation involves considerable expenditure that is, on any objective view, completely wasteful. Avoiding venue disputation is a real cost and time advantage for choosing the international arbitration regime.
There is of course a long history of tension – one hopes that in this day and age it is a creative tension – between courts and arbitrators who have on occasions treated each other as if they were trade rivals in the dispute resolution business. I do not believe that is a prevalent attitude today, but one cannot say that it has completely disappeared.
As many of you are aware, in a joint judgment to which I was a party in Raguz v Sullivan (2000) 50 NSWLR 236, President Mason and I referred to the traditional hostility of common law judges to commercial arbitration in the period up to the middle 19th century, until the famous case of Scott v Avery upheld the validity of arbitration agreements which made an award a condition precedent to any right of action under a contract. As we said in that judgment, the canny Scot, Lord Campbell, explained that hostility by the fact that judicial salaries were almost entirely dependent upon court fees and, accordingly, English judges had a personal financial incentive to maximise the number of cases that were brought in the courts. That incentive did not disappear until the mid 19th century. It was never a feature of Australian judicial practice, although the first Chief Justice of New South Wales, Sir Francis Forbes, had to suppress the wishes of his fellow judges to establish such a system here. Only those judges who are historians can look back wistfully to the days when being a judge was a route to substantial wealth.
As we pointed out in Raguz v Sullivan this part of Lord Campbell’s judgment must have caused quite a stir because it was removed from the published reports of the decision.
Of course these days the financial interest in ensuring that the flow of work is maximised is now only relevant to commercial arbitrators. In the case of judges, incentives are limited to matters of status and self-importance, motivations which it would be wrong to dismiss as trivial, but which nevertheless are not quite as compelling as money.
As the judgment in Raguz v Sullivan clearly shows, Australian commercial judges have, generally, become active proponents of alternative dispute resolution mechanisms, including commercial arbitration. This was manifest most recently in the judgment of the Full Federal Court last year in Comandate Marine Corp v Pan Australia Shipping Pty Limited (2006) 157 FCR 45.
Of course there will be exceptions, but there is no doubt that throughout Australia commercial judges do not manifest the kind of hostility to commercial arbitration that may once have been the case. This is in part a function of the managerial role that judges have assumed over recent decades with respect to both individual case management and case load management within their courts. By comparison with the past, judges do not sit back as neutral umpires allowing parties to take as much time as they like but, particularly in commercial litigation, insist on the early disposition of the real issues in dispute in the most economical manner possible. Often enough that involves support for alternative dispute resolution processes.
When it comes to international commercial litigation, Australian judges are conscious of the advantages of arbitration from the point of view of enforcement. They are also aware that arbitration has certain other advantages, particularly to those parties who wish, for perfectly appropriate commercial reasons, to ensure confidentiality. Of course one person’s privacy is another person’s secrecy and there are many people, not simply trade rivals, who have an interest in knowing what is going on.
There is, of course, express provision for judicial supervision of commercial arbitration. I am well aware that many arbitrators remain doubtful that judicial expressions of support are fully reflected in the exercise of these powers. You should recognise that you may be in no different position to those numerous trial judges who complain about the intervention of appellate courts, or administrators who complain about judicial review.
Courts have specific statutory powers, indeed duties, with respect to commercial arbitration. The statute must, of course, be applied in accordance with its terms. However, in my opinion, these statutory powers should be regarded as conferring a supervisory jurisdiction principally directed to maintaining the integrity of the process of arbitration. This is an essential function which the courts perform in a number of different spheres of conduct – notably in other supervisory jurisdictions such as administrative law.
The statutory power to review creates an appeal on a question of law. That does not mean that whenever such a question exists the power to intervene must be exercised. The exercise of the discretion to make orders raises distinct issues. Whenever a court’s intervention is concerned with matters of personal and institutional integrity, the system of commercial arbitration is enhanced.
Practitioners should accept that arbitrations do go wrong, sometimes fundamentally so. Arbitrators can manifest bias. Arbitrators have been known to commit errors of so fundamental a kind as, on any view, to justify intervention by a court.
It cannot be suggested that a light-handed but effective supervisory jurisdiction interferes in any way with the autonomy of the parties which is the underlying rationale of commercial arbitration and the reason why it has acquired a broad level of acceptance in dispute resolution. The party’s choice was not, however, to select arbitration per se, but to select arbitration by persons and by procedures that manifest a high degree of integrity.
Knowledge that the integrity of arbitration can be assured by a light-handed but effective supervisory jurisdiction, enhances the confidence of the commercial community with respect to the arbitration process. Accordingly, a supervisory intervention should be welcomed by arbitrators, rather than treated with suspicion.
The confidence of the commercial community in arbitration depends, in large measure, on the knowledge that the process will work as intended. That can only occur if both the personal integrity of the individuals conducting arbitrations and the institutional integrity of the processes is assured.
Sometimes that requires the exercise of a supervisory jurisdiction after the event. Plainly, the process of selecting arbitrators and agreeing upon the rules pursuant to which the arbitration will be conducted, plays an important role in maintaining the confidence of the commercial community in this regard. The recognition that institutions are fallible and sometimes need to be corrected in retrospect, is not an insight unique to arbitration.
The very existence of a supervisory jurisdiction assists in maintaining confidence in the system by ensuring that, on those few occasions when that confidence may not be fulfilled, that the failure is capable of correction. Such a jurisdiction is not a threat to commercial arbitration. It is a desirable, indeed an essential part of its effective operation.
I accept that it is necessary for commercial judges to bear in mind the need to support, to the extent that they are able while acting in accordance with law, the autonomous choice of the parties to refer disputes to arbitration. Furthermore, a significant advantage of commercial arbitration is the potential it has, albeit not always realised, for being more cost efficient than the processes of a formal adversary system.
It is not desirable for the courts to insist upon the replication of the procedures with which they are familiar in commercial arbitrations although, it appears, that many who practice in arbitration are continually pushing the process in that direction. Such tendencies are, I understand, a matter of concern to many of you.
I am aware of the recent decision in BHP Billiton Limited v Oil Basins Limited [2006] VSC 402 which requires arbitrators to give reasons, in certain circumstances, in the same form as is required from a judge. It is not appropriate for me to say too much about that decision, because I understand it is the subject of appeal. However, I wish to note that there are a number of cases on the subject, not referred to in the judgment, which were the subject of comprehensive exposition two decades ago by Tom Bingham in an address in which he set out in point form the different requirements of reasons by a court and reasons by an arbitrator. (See Bingham “Reasons and Reasons and Reasons: Differences Between a Court Judgment and an Arbitral Award” (1988) 4 Arbitration International 1 reprinted in Australia in (1997) 16 The Arbitrator 19.) There is much wisdom in his Lordship’s analysis.
The relationship between courts and arbitrators should remain one of collaboration which, in my opinion, is how the relationship has developed over recent years. Indeed, many of the ideas for case management now regularly employed in commercial litigation, were first developed in commercial arbitration. Most recently, the addition in our Commercial List Practice Note of a stopwatch system was an idea I picked up from commercial arbitration. In my opinion, it deserves more widespread use in both spheres of dispute resolution.
With respect to collaboration, as a number of people attending this conference are aware, a few years ago I raised the possibility of having the Supreme Court Act amended to permit judges of the Court to be appointed as commercial arbitrators, where parties wished that to occur. I was acting on the suggestion to that effect made by Andrew Rogers QC at the Commercial List Centenary Dinner.
Such an option has long existed in England, although it is very rarely used. Tom Bingham, the current senior Law Lord, when he was a commercial judge, did once sit as a commercial arbitrator in a dispute between two of the United Kingdom’s major corporations. He told me that that had been a successful exercise, because those corporations wanted to have a senior commercial judge resolve their disputes, but to do so in private. I thought it possible that the availability of an option of this character may be useful in establishing Australia as a desirable venue for international commercial arbitration.
This idea was worth pursuing so long as the arbitration community regarded it as a valuable addition to the Australian scene. The Supreme Court of New South Wales does not have the spare judicial resources which can readily be diverted to such a function, and should not do so in the absence of real enthusiasm for the idea. When I consulted ACICA the response was supportive, but not enthusiastic and, accordingly, I took no further steps in this direction.
This suggestion may arise again in the future. If it does I am sure you will realise that it is not a means of taking bread out of the mouths of your children. It is worth doing only if it is a reinforcement of the role and significance of commercial arbitration, which it is the purpose of this conference to proclaim.
Insofar as this formality is required, I declare the conference open.
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