Arbitration In Australia - Winds Of Change Or Merely A Breeze?

This article is courtesy of Mr. Ron Salter and he can be contacted as follows:

DLA Phillips Fox

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Melbourne Victoria 3000 AUSTRALIA

Tel: +61 39274 5000

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Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further - by connecting you to a global network of legal experience, talent and knowledge.

 

For the better part of a century - or perhaps even longer - arbitration has been the preferred method of dispute resolution in the maritime industry. Just as the concept of 'look and sniff' arbitration developed for commodity quality disputes, arbitration was presumably seen as the ideal means of dispute resolution, involving arbitrators appointed from within the industry seeking to resolve disputes expeditiously and inexpensively without the need for legal intervention.

In this article we look at the current state of affairs for arbitration and the debate surrounding legislative reform.

The changing face of arbitration

In a paper delivered at a Chartered Institute of Arbitrators International Dispute Resolution Conference in Kuala Lumpur last year, and published in (2009) 75 Arbitration 231, Bruce Harris, a leading maritime arbitrator, reflected upon his years of experience in maritime arbitration in London. Harris stated: '45 years ago, most arbitrations were conducted by the parties themselves, their brokers or agents, but not by lawyers. Each would appoint an arbitrator. The claimant would send its nominee a short letter setting out its claim accompanied by the documents it relied on.

The claimant's appointed arbitrator would send that on to his counterpart who, in turn, would pass it to the respondent asking for comments by way of defence and any documents the respondent relied on, and those would then be sent back via the arbitrators to the claimant who would have a right of reply; and the arbitrators would then proceed to their award.

In this very quick and simple (and cheap) procedure there were no, or at least very few, requests for further information and no real question of any type of discovery. Procedural questions were happily ignored, as very often were the subtleties of legal argument. Whilst the arbitrators were bound to apply English law as best they could, they normally reached a commercially sensible decision which, happily, would usually be in line with the law.

In the absence of something going seriously wrong, no one would challenge the arbitrators or their proceedings; and there would be no question of arbitrators' conclusions being reviewed by the judiciary unless one party thought there was a real question of law involved and asked the arbitrators to state their award in the form of what was called a "special case" for the opinion of the court.

This meant that the arbitrators did not generally need any legal expertise either to run these informal proceedings or to reach their conclusions. If they found themselves in difficulty on the law, they would often consult a solicitor or appoint a lawyer as third arbitrator or umpire.'

Of course, as Bruce Harris himself pointed out in his paper, much has changed in the 45 years since he commenced his involvement with maritime arbitration. In particular, he observed that today's cases were often far more complicated, both on the facts and on the law than they had been in times gone by, and that conduct of arbitration had became far more elaborate and legalistic. Nevertheless, it is fair to say that arbitration remains the dispute resolution mechanism of choice in the maritime industry, particularly for disputes arising under charter parties and contracts of affreightment, for disputes arising under ship building contracts, and for salvage disputes.

A need for legislative reform?

In Australia, with its federal system of government, separate arbitration regimes exist in parallel for international arbitration and domestic arbitration. While the states and territories are concerned with domestic arbitration, the Commonwealth Government has a constitutional responsibility for international arbitration.

The relevant Commonwealth legislation is the International Arbitration Act 1974 (Act). As a result of a cooperative effort in the early 1980s, the states and territories each operate under legislation which is fairly uniform, but not entirely so.

The Standing Committee of Attorneys-General (SCAG), which involves state and territory Attorneys-General and the New Zealand Minister of Justice, has been discussing changes to the uniform state and territory legislation for quite some time without moving forward. However, with increased agitation for change emerging from a number of sources, not least Chief Justice Spigelman of the New South Wales Supreme Court, SCAG, at its last meeting in April 2009, agreed to the preparation of new uniform commercial arbitration legislation based on the UNCITRAL Model Law on International Commercial Arbitration, 'supplemented by any additional provisions as are necessary or appropriate for the domestic scheme'. The stated aim of the draft model Bill is to give effect to the overriding purpose of commercial arbitration, which is to provide a method of finally resolving disputes that is quicker, cheaper, and less formal than litigation.

A little earlier, in November 2008, the Commonwealth Attorney-General, the Honourable Robert McClelland announced a review of the Act, and his department published a discussion paper. The paper invited the making of submissions by interested parties, and despite the fact that a relatively short time frame was given for those submissions, some 24 separate submissions were made. Each of those submissions has been taken into account, and the process for the drafting of new legislation has been put into place. The last news we have had is that the Attorney-General's department is hoping to have the legislation ready for the spring session of Parliament.

The November 2008 discussion paper posed eight major questions and also invited other observations. Many of the questions posed received either unanimous or near unanimous responses, but two particular issues, which might be described as territorial disputes, brought a considerable divergence of opinion. One of these issues was whether the Act should allow for the appointment of an arbitral institution to perform a number of the functions set out in the UNCITRAL Model Law, and the other was whether the Federal Court of Australia should have exclusive jurisdiction in matters concerning international arbitration. The latter issue, in particular, provoked a wide divergence of views, with the state and territory Chief Justices pressing strongly for the retention of the jurisdiction of their respective courts.

For the Australian arbitration practitioner, and participants in the maritime industry involved with arbitration, the outcome of the various discussions and debates will be of interest. Whatever side of the argument a particular interest group supports, it is apparent that the common thread binding reform of the domestic and international regimes is one of improving both the substance and the perception of arbitration as a dispute resolution means.

However, it remains to be seen whether the reforms will occur soon, or whether we will be left waiting for several years for any action. The likelihood is that the winds of change will blow through the international arbitration regime while a gentle zephyr will waft through the domestic arbitration regime for a number of years.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

Australia Climate Change and D&O Implications

(Note:    I have been away from this post for a few months attempting to develop a more robust site with information from around the world. To date, the primary information available has been with the assistance of colleagues and partners in United Kingdom and EU countries. For the most part, many of my Clients have the bulk of their exposures in that part of the world, therefore, my focus is greater. Recently though, I have been able to develop greater issues-related information from other countries. I hope to continue to develop this broad base of information on risk for you.)

 

The legislation in Australia for the Carbon Pollution Reduction Scheme highlights the need to consider carefully the scope of D&O insurance policies.

The Bills introduced into Australian Parliament to implement the Carbon Pollution Reduction Scheme will impact directly a large number of entities and their directors and officers. There will also be a broad, indirect impact when emissions trading starts. The CPRS Bills draw attention to key areas of D&O insurance policies.

Liability of executive officers and insurance for pecuniary penalties Under Part 20 of the Carbon Pollution Reduction Scheme Bill 2009, 'an executive officer will contravene a civil penalty provision if they are involved in a contravention by their company'. This makes executive officers personally liable for misconduct of the company if they have been reckless or negligent. The result may be significant pecuniary penalties imposed on the executive officer.

The Consequential Amendments Bill also extends the liability regime under the National Greenhouse and Energy Reporting Act 2007. Part 4 of the NGER Act will no longer be limited to liability of chief executive officers. It will, like the CPRS Bill, soon apply to a director, the chief executive officer, the chief financial officer and the secretary of a company. This would appear to include non-executive directors.

Traditionally insurers in the Australian D&O market have excluded liability for fines and penalties under D&O policies. Recently however there has been a move by some insurers to provide cover for civil penalties in some circumstances. It may be against public policy to cover officers for civil penalties where there has been a willful or deliberate breach of duty. On the other hand, vital cover may be available for officers who have only been negligent. It is recommended that companies and their directors may wish to consider whether their D&O policy provides cover for pecuniary penalties and whether that cover will extend to potential liability under the CPRS and NGER Act.

The new regulator and insurance for investigation costs

The Australian Climate Change Regulatory Authority Bill 2009 establishes the Australian Climate Change Regulatory Authority, which will be responsible for administering the CPRS, the Renewable Energy Target and the National Greenhouse and Energy Reporting System. Since climate change is one of the Federal Government's key priorities, it may well become a powerful regulator.

When ASIC launches an investigation, the company and its directors can incur significant costs. The market for D&O insurance covering investigation costs has grown in recent years. Some policies will now cover directors for their costs in responding to an ASIC notice or attending an examination by ASIC, even if they have not been accused of any wrongful act. A more extensive policy may even provide cover when no formal notice has been served but the director is nevertheless required by the regulator to co-operate in some manner. When the Climate Change Authority exercises its powers, directors may need to look to their insurer to cover investigation costs.

Liability linked to the company and insurance for outside directorships and JVs

In its current form the CPRS Bill allows for transfer of liabilities and the nomination of a joint venture company to be the responsible entity. It is possible that a company may be liable for the control of a facility by an entity which is not a member of the company's group. An executive officer can be personally liable for their company's contravention of a civil penalty provision in the CPRS. That liability is linked to the company and not the operating entity.

The Government is continuing to consult with key stakeholders about controlling corporation liability and mechanisms to transfer that liability within corporate groups. For directors who hold outside directorships and responsibility in relation to unincorporated joint ventures, however, it may be time to consider carefully the scope of their D&O policy as it applies to these issues. Some policies do not provide cover for outside directorships unless specifically requested. Others may automatically cover directors nominated to the boards of other companies but may exclude joint ventures.

Pollution exclusions

Finally, many insurance policies contain an exclusion relating to liability arising from the release, discharge or escape of pollutants. These are generally broadly worded exclusions. They could go so far as to impact cover which may otherwise have been available for liability under the CPRS.

Directors may wish to have frank discussions with their insurer about cover in relation to the CPRS. At a minimum, directors may want to consider a D&O policy which provides cover for "pollution defense costs". They may also consider seeking that cover without a sub-limit of liability. A more extensive policy may even cover shareholder claims arising from pollution issues.

Conclusion

Subject to their passage through Parliament, the Bills establishing the CPRS will herald a new era in corporate responsibility. It is yet another reminder of the importance of considering D&O insurance in the context of the company's broad risk management framework.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.