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Litigation and dispute resolution: the importance of well-drafted arbitration clauses

Two recent Federal Court decisions provide examples of the importance of well-drafted arbitration clauses. In both cases, the use of arbitration was accepted by the court, despite counterparties raising a number of issues and criticisms in each case.

In Liaoning Zhongwang Group v Alfield Group, the Federal Court ruled that a Chinese arbitral award regarding an Australian distribution arrangement was enforceable against the Australian company, despite allegations by the Australian company that: (a) there was no valid arbitration agreement between the parties, (b) the underlying commercial document was a sham that did not reflect the true relationship between the parties, and (c) the Australian company was unable to attend the arbitration in China as its sole director had been threatened with imprisonment if he travelled to China.

In Hancock Prospecting Pty Ltd v Rinehart, the Federal Court of Appeal stayed legal proceedings involving a dispute between members of the Rinehart family, to enable the dispute to proceed to arbitration, notwithstanding arguments that: (a) the dispute would not involve a ‘commercial arbitration’ within the meaning of the relevant arbitration Act (as the dispute arose between family members who were not in a commercial relationship), (b) the relevant arbitration clause was too narrow to cover the matters in dispute, and (c) the relevant arbitration clause was null and void, or incapable of being performed.

Arbitration clauses should be drafted carefully, bearing in mind the broader dispute resolution strategy that is intended, including any other dispute resolution procedures included in the agreement. Key details that should always be specified in an arbitration clause include:

  • The type(s) of disputes that will be determined by arbitration;
  • The physical location where the arbitration will occur;
  • The country whose law will be applied in the arbitration, as well as the rules that will apply to the arbitration;
  • The language in which the arbitration will be conducted;
  • The number of arbitrator(s), and the method by which they will be selected;
  • The process and timeframes that will be followed in the arbitration; and
  • Whether a dissatisfied party may appeal following the arbitration.

The use of arbitration as part of a comprehensive dispute resolution strategy is increasing, given the advantages of arbitration in terms of confidentiality, flexibility and international enforcement of arbitral decisions.

This article was written by Anthony Haly, Partner. 

Important Disclaimer: The material contained in this publication is of a general nature only and is based on the law as of the date of publication. It is not, nor is intended to be legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.