Article

Note: When an arbitrator ordered Bradken Resources Pty. Ltd., an Australian Corporation (Seller), to pay American manufacturer ESCO Corp. (Manufacturer) USD 210,000.00 for arbitration procedure costs and USD 7,747,087.88 for legal costs incurred in the arbitration regarding disputes over licensing agreements, Manufacturer sought to confirm the awards in the US District Court for the District of Oregon. Manufacturer also claimed pre- and post - judgment interest at the Oregon state rate of 9%. The US District Court ordered the arbitrator's awards be paid in full, but awarded post-judgment interest at the US federal interest rate of 0.19% since federal, not Oregon, law governed the judgment. The court also denied Manufacturer's request for pre-judgment interest. Seller then appealed to the Court of Appeals for the Ninth Circuit.

With the appeal process likely to last two years, Manufacturer sought to enforce the awards in the Federal Court of Australia, Sydney Division. The original arbitration clause of the agreement between Manufacturer and Seller specified that an award could be enforced in any court that had jurisdiction. Seller moved to adjourn the Australian court's proceedings until the appeal was resolved in the United States. In order to agree to the adjournment, Manufacturer demanded that Seller provide an irrevocable bank guarantee in the amount of the arbitrator's award, plus pre- and post-judgment interest set at the higher Australian interest rates. Seller counter-offered to apply for a standby to be issued in favor of Manufacturer to reflect the judgment of the US District Court, namely the arbitrator's award plus post-judgment interest at the US federal rate.

The Federal Court of Australia, Foster, J., granted Seller's motion for adjournment. The court also ordered Seller to provide a "suitable security" in the form of a standby for the amount of the arbitrator's award, without interest.

The Judge noted that under the Australian codification of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards, the International Arbitration Act of 1974 (IAA), a court has discretion to adjourn its enforcement proceedings if a motion to set aside the award was made in the country where the award was given. The Judge also stated that the court also has discretion to order a party to obtain "suitable security" to protect the enforcing party during adjournment. Since the IAA was intended to facilitate international arbitration and the enforcement of foreign arbitral awards, the Federal Court reasoned that adjournment should only be granted if the argument for the motion to set aside the award is valid and not frivolous, or as long as adjournment would not make enforcement unduly difficult. The court noted that enforcing courts would ordinarily be making independent judgments on incomplete material and in situations that call for brief considerations. As such, enforcing courts should defer to the foreign court. Thus, the court accepted the determination of the American courts that Seller's arguments to set aside or diminish the arbitrator's award were "not frivolous but...plainly arguable". The court ruled that to be suitable, a security does not need to cover the largest possible award that could be enforced. The court noted that Manufacturer chose to enforce the arbitrator's award in a US court, that Seller's arguments to set aside the award would involve US law, and therefore the US District Court and Court of Appeals were appropriate venues to resolve the dispute.

[JEB/sdo]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.