FEDERAL COURT OF AUSTRALIA

Sino Dragon Trading Ltd v Noble Resources International Pte Ltd

[2015] FCA 1028

THE COURT ORDERS THAT:

1.    The application is dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    In 1974, the International Arbitration Act 1974 (Cth) came into force. It has objects (in s 2D) which include “to facilitate the use of arbitration agreements made in relation to international trade and commerce”. It gives legal force to the UNCITRAL Model Law on International Commercial Arbitration (the Model Law). It strikes a careful balance between giving effect to the untrammelled manifestations of the consent of the parties and the supervision of the courts. One concern which limits the involvement of courts, particularly during the arbitration process, is that the greater the degree of interlocutory intervention the more likely it is that an arbitration could be delayed, and its efficiency compromised.

2    It is unfortunate that this application was brought in the teeth of the express provisions of the International Arbitration Act and the Model Law. The necessary consequence of this application is the interruption of the orderly arbitration process. This application creates the potential for unnecessary delay to an arbitration which is not complex and in which the principal issues are contractual questions of mitigation, the quantum of some expenses, and an allegation of oral variation. However, the potential disruption has been minimised by the considerable co-operation of solicitors and counsel which permitted this substantial application to be prepared, heard, and decided within two weeks. For the reasons below, the application must be dismissed.

The background to this application

3    Sino Dragon is a Hong Kong company. It is in dispute with Noble Resources which is a Singaporean subsidiary of the Noble Group. The companies entered a contract on 9 January 2014 in which Sino Dragon agreed to buy 170,000 dry metric tonnes of iron ore from Noble Resources for a base price of US $119 per DMT (dry metric tonne), inclusive of the freight to ship it to China.

4    Clause 4.1 of the contract required Sino Dragon to open an irrevocable and workable letter of credit on or before 17 January 2014, with any 1st class bank in China or Hong Kong for the amount of the shipment value. Noble Resources says that Sino Dragon breached the contract by failing to open the letter of credit or failing to perform the contract generally. Sino Dragon says that it informed Noble Resources on 23 January 2014 that it (Sino Dragon) had failed to perform the contract. Noble Resources says that, on 23 January 2014, Noble Resources terminated the contract and resold the iron ore to a third party for US $108.50 per DMT.

5    Sino Dragon says that the parties had previously agreed to vary the contract to reduce the sale price of the iron ore to US $114 per DMT. It says that the market price on 24 January 2014 was US $114.95. In its Rejoinder, Sino Dragon says that the market price on 24 January 2014 was US $124.75. On either view, Sino Dragon says that it did not cause any loss to Noble Resources or, which on some authorities is controversially said to be the same thing, Noble Resources did not mitigate its loss.

6    The contract of sale between the parties contains an arbitration clause. Noble Resources served a notice of arbitration on Sino Dragon. It estimated the value of its claim at $1.9 million.

7    Noble Resources appointed Mr Mehigan as an arbitrator. Sino Dragon did not make any appointment. So an appointing authority designated by the Permanent Court of Arbitration appointed Mr Bonnell as a second arbitrator. The two appointed arbitrators appointed a third, Mr Kay Hoyle, as the presiding arbitrator.

8    Sino Dragon challenged the appointments of Mr Bonnell and Mr Kay Hoyle several times. Before the last challenge had been determined by the appointing authority, Sino Dragon brought this application seeking to have this Court “decide on the challenge”. The Model Law power for this court to do so is subject to conditions. One of the conditions is that a challenge under any procedure agreed upon by the parties has been unsuccessful. Since Sino Dragon’s challenge has not been determined, it is not a challenge that has been unsuccessful. There is no separate common law power for this Court to decide on the challenge.

9    Counsel for Sino Dragon explained at the outset of his submissions that Sino Dragon broadly sought two other forms of relief apart from removal of Mr Bonnell and Mr Kay Hoyle. Those are (i) the issue of draft subpoenas, and (ii) the production of documents (ts 3). Counsel said that the foundational basis upon which Sino Dragon sought these two types of orders was as orders in aid of the arbitration. But these orders do not aid the arbitration. They interfere with it. The orders are sought to contradict the effect of procedural rulings made by the Tribunal. The colourful submission by counsel for Noble Resources is not inapposite. He submitted that the orders sought were akin to those sought on an appeal from a routine procedural directions hearing. The scheme of the International Arbitration Act and the Model Law would be undermined by the making of orders of this nature. The orders should not be made.

10    Sino Dragon also sought interlocutory orders restraining Mr Bonnell and Mr Kay Hoyle from taking any further steps in the arbitration, pending the determination of this application. I indicated to counsel that I expected that I would make orders and deliver reasons for decision delivered within 24 hours. In those circumstances, counsel for Sino Dragon properly accepted that there was no utility in any interlocutory orders. That application was dismissed and, without opposition, costs were ordered to be in the cause of the primary application.

11    Noble Resources took an active part in this application. But Mr Bonnell and Mr Kay Hoyle filed only submitting appearances. Although, at some points, the oral submissions by counsel for Sino Dragon might have been construed as questioning this course (ts 41-42), it was entirely proper for Mr Bonnell and Mr Kay Hoyle to submit to any decision to be made by the Court, and not to oppose the application which concerned a challenge to their appointments.

Key matters in the arbitration timeline

12    As I have explained, this case concerns a contractual dispute. The governing law of the contract is the law of Western Australia (cl 40.1).

13    Clause 39 of the contract is concerned with dispute resolution. It provides in cl 39.2 for the referral to arbitration in Australia, after a period of time, for any “dispute, controversy or claim arising out of, under, in connection with or in relation this Contract”. Clause 39.2 provides that the arbitration is to be conducted in accordance with the prevailing UNCITRAL Arbitration Rules, the language of the arbitration shall be English, and the Tribunal shall consist of three arbitrators.

14    Articles 3(4)(a) of the UNCITRAL Arbitration Rules provides that a notice of arbitration may also include a proposal for the designation of an appointing authority. Article 6(1) of the UNCITRAL Arbitration Rules provides that if the parties have not already agreed on the choice of an appointing authority, a party can propose the name of an appointing authority.

15    On 1 May 2014, Noble Resources served a notice of arbitration on Sino Dragon. Noble Resources estimated the value of its claim to be $1.9 million. In the notice, Noble Resources proposed the designation of the Australian Centre for International Commercial Arbitration as appointing authority. In the notice of arbitration, Noble Resources also appointed Mr Mehigan as a member of the Tribunal.

16    On 8 July 2014, the solicitors for Noble Resources wrote to the Permanent Court of Arbitration in the Hague. The solicitors said that Sino Dragon had failed to respond to the notice of arbitration within 30 days. They referred to Article 4 of the UNCITRAL Arbitration Rules which provides in Article 4(3) that “the constitution of the arbitral tribunal shall not be hindered by any controversy with respect to the respondent’s failure to communicate a response to the notice of arbitration …”. Article 9(2) of the UNCITRAL Arbitration Rules also provides that:

If within 30 days after the receipt of a party’s notification of the appointment of an arbitrator the other party has not notified the first party of the arbitrator it has appointed, the first party may request the appointing authority to appoint the second arbitrator.

17    Noble Resources requested that the Secretary-General of the Permanent Court of Arbitration designate the appointing authority. Noble Resources also requested that the appointing authority be the Australian Centre for International Commercial Arbitration.

18    On 23 July 2014, the Permanent Court of Arbitration wrote to Sino Dragon and to the solicitors for Noble Resources. The Permanent Court referred to the request for an appointment of an appointing authority and invited Sino Dragon to respond by 7 August 2014. There is no evidence that Sino Dragon responded.

19    On 12 September 2014, the Secretary-General appointed Mr Williams QC as the appointing authority.

20    On 17 September 2014, the solicitors for Noble Resources wrote to Mr Williams QC and to Sino Dragon and explained that Sino Dragon had failed to notify Noble Resources of the appointment of an arbitrator within 30 days of Noble Resources’ notification of the appointment of Mr Mehigan. Noble Resources requested that Mr Williams QC appoint a second arbitrator. There is no evidence that Sino Dragon responded.

21    On 26 September 2014, Mr Williams QC advised Sino Dragon that he had appointed Mr Bonnell as the second arbitrator. There is no evidence that Sino Dragon responded.

22    On 8 October 2014, the solicitors for Noble Resources wrote to Mr Williams QC saying that they were not aware of any circumstances that are likely to give rise to justifiable doubts about Mr Bonnell’s impartiality or independence. However, “for the sake of good order” they advised that King & Wood Mallesons, a firm of which Mr Bonnell is a partner, are presently acting for a different subsidiary of the Noble Group in separate and unrelated proceedings in China which may involve proceedings in Hong Kong in due course. They said that to the best of their knowledge, Mr Bonnell was not directly involved in that matter.

23    Also on 8 October 2014, Mr Bonnell responded to the letter from the solicitors for Noble Resources saying the following:

I did ask the Chinese firm operating as King & Wood Mallesons to perform a conflict search, but for some reason that search did not identify the matter identified in your letter. I can confirm that the Chinese firm is financially separate from the Australian firm of which I am a partner and I have no involvement in the matter in which the Chinese firm is acting.

24    On 14 October 2014, Sino Dragon objected to the appointment of Mr Bonnell without giving reasons. Sino Dragon said that it would appoint another arbitrator in 15 days.

25    On 14 October 2014, Mr Mehigan, on behalf of the Tribunal, wrote to Sino Dragon saying that “the Tribunal asks that you specify the matters which [Sino Dragon] believes gives rise to justifiable doubts as to Mr Bonnell’s impartiality or independence”. Mr Mehigan also said that the Tribunal requested a statement of the reasons for the challenge by 17 October 2014. There is no evidence that Sino Dragon responded.

26    In the 14 October 2014 email, Mr Mehigan also confirmed to Sino Dragon that the position from previous emails was maintained in that he (Mr Mehigan) and Mr Bonnell had appointed Mr Kay Hoyle as the presiding arbitrator. He explained that this appointment was being finalised.

27    On 16 October 2014, the solicitors for Noble Resources wrote to the Tribunal, copied to Sino Dragon, saying that although Noble Resources reserved its right to disagree with any properly made challenge, it requested that Sino Dragon be given until 23 October 2014 to make a challenge to Mr Bonnell’s appointment. There is no evidence that Sino Dragon responded.

28    On 17 October 2014, Mr Mehigan replied on behalf of the Tribunal saying that if Sino Dragon requires additional time then the Tribunal requests that the statement of reasons for the challenge be provided by 23 October 2014.

29    On 22 October 2014, Sino Dragon wrote to the Tribunal saying that the parties were negotiating and that an extension of time was requested.

30    On 23 October 2014, Mr Mehigan replied on behalf of the Tribunal saying that the Tribunal did not understand whether the request for an extension of time was a general request or was for an extension of time in relation to the challenge to Mr Bonnell’s appointment.

31    On 24 October 2014, after the expiry of the time period for reasons to be provided for the challenge to Mr Bonnell’s appointment, Mr Mehigan wrote to the parties on behalf of the Tribunal. He explained that since the parties were not agreed on an extension of time, and given the importance of resolving challenges to the constitution of the Tribunal quickly, the Tribunal did not propose to extend the time period. He explained that Sino Dragon could pursue its challenge by seeking a decision from the appointing authority (Mr Williams QC). He explained that this decision must be sought within 30 days of the notice of challenge. Since the notice of challenge was received on 15 October 2014, he explained that Sino Dragon was required to seek a decision from Mr Williams QC by 14 November 2014. There is no evidence that Sino Dragon responded.

32    On 28 October 2014, Mr Williams QC, as appointing authority, wrote to Sino Dragon requesting that it confirm as soon as possible whether it elected to pursue the challenge to Mr Bonnell. Mr Williams QC explained that Sino Dragon had 30 days, ie until 14 November 2014, to pursue its challenge. There is no evidence that Sino Dragon responded.

33    On 17 November 2014, after the period for bringing a challenge to the appointing authority had expired, Mr Mehigan wrote to the parties on behalf of the Tribunal observing that neither the Tribunal nor the appointing authority had received notice that Sino Dragon intended to pursue its challenge to the appointment of Mr Bonnell.

34    On 19 November 2014, Mr Kay Hoyle wrote to Sino Dragon announcing his appointment as presiding arbitrator and saying that he was not aware of any conflict that would prevent him from acting. There is no evidence that Sino Dragon responded.

35    On 25 November 2014, the Tribunal issued Procedural Order Number 1. The Tribunal requested comment from the parties. The order contained common directions concerning the arbitration: it was to be conducted in accordance with the UNCITRAL Arbitration Rules; the language was to be English; directions were made concerning methods of communication with the Tribunal; and dates were directed for filing of memorials.

36    On 28 November 2014, Sino Dragon objected to Procedural Order Number 1. It said that it had not exercised its right under Article 9(1) of the UNCITRAL Arbitration Rules. It requested an extension of time “to implement the procedure”.

37    On 1 December 2014, the Tribunal informed Sino Dragon that to the extent to which Sino Dragon had requested an extension of time within which to challenge the appointment of Mr Bonnell, the extension of time was refused. The Tribunal also issued Procedural Order Number 1.

38    On 12 January 2015, Noble Resources served its Statement of Claim.

39    On 15 February 2015, Sino Dragon served its Statement of Response. In its Statement of Response, Sino Dragon objected to the appointment of Mr Bonnell by the appointing authority (Mr Williams QC) on the basis “of its partiality”.

40    Between March and April 2015 submissions were made to the appointing authority concerning the challenge to Mr Bonnell.

41    On 8 May 2015, the appointing authority rejected the challenge to Mr Bonnell.

42    On 27 August 2015, a further challenge was brought to the arbitrators by Sino Dragon.

43    On the same day, 27 August 2015, Mr Kay Hoyle wrote back to Sino Dragon. He explained the Tribunal’s views rejecting each of the grounds for challenge.

44    The arbitration is set down to be heard on 26 October 2015. Noble Resources says that it is ready, willing and able to proceed on that date.

Sino Dragon’s challenges to Mr Bonnell and Mr Kay Hoyle under the UNCITRAL Arbitration Rules

45    The UNCITRAL Arbitration Rules which Noble Resources and Sino Dragon agreed to in their contract, contains Articles 12 and 13 which provide in relevant parts:

Article 12

(1)    Any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.

(2)    A party may challenge the arbitrator appointed by it only for reasons of which it becomes aware after the appointment has been made.

…

Article 13

(1)    A party that intends to challenge an arbitrator shall send notice of its challenge within 15 days after it has been notified of the appointment of the challenged arbitrator, or within 15 days after the circumstances mentioned in articles 11 and 12 become known to that party.

(2)    The notice of challenge shall be communicated to all other parties, to the arbitrator who is challenged and to the other arbitrators. The notice of challenge shall state the reasons for the challenge.

(3)    Where an arbitrator has been challenged by a party, all parties may agree to the challenge. The arbitrator may also, after the challenge, withdraw from his or her office. In neither case does this imply acceptance of the validity of the grounds for the challenge.

(4)    If, within 15 days from the date of the challenge, all parties do not agree to the challenge or the challenged arbitrator does not withdraw, the party making the challenge may elect to pursue it. In that case, within 30 days from the date of the notice of challenge, it shall seek a decision on the challenge by the appointing authority.

46    The process in Articles 12 and 13 is reasonable clear. A party has 15 days to bring an Article 12 challenge either from notification of the arbitrator’s appointment, or from knowledge of the circumstances for a challenge based on Article 12(1). After communication of the notice (and reasons) the parties may agree to the challenge or the arbitrator may withdraw. But if this does not occur then the challenging party must seek a decision on the challenge by the appointing authority.

47    The first challenge by Sino Dragon was on 14 October 2014. That challenge was not sent within 15 days after being notified of the appointment of Mr Bonnell. It also did not “state the reasons for the challenge” to the appointment of Mr Bonnell as was required by Article 13(2) of the UNCITRAL Arbitration Rules.

48    The time period was extended by the Tribunal but the extended time period lapsed without response.

49    After the first challenge, Sino Dragon was invited, on two occasions, to bring a challenge to the appointing authority, challenging Mr Bonnell’s appointment by 14 November 2014. It did not do so.

50    The second challenge by Sino Dragon was on 17 February 2015 in its Statement of Response. Sino Dragon challenged the validity of the arbitration agreement as well as the partiality of Mr Bonnell. As to the latter, Sino Dragon made two allegations in its Statement of Response. In summary they are as follows:

(1)    Mr Williams QC did not provide Sino Dragon “with the name of the nominated appointing authority and arbitrator”. Sino Dragon said that without “detailed information” about Mr Williams QC and Mr Bonnell it could not give any “opinions before the designations were declared”.

(2)    Mr Mehigan and Mr Bonnell are both Australian and they appointed Mr Kay Hoyle as the presiding arbitrator. Sino Dragon continued:

Because of the regional and cultural difference, the three arbitrators, who live in Sydney, may have a partial understanding in the Asian Respondent, which may affect the fairness of the arbitration. Besides, the legal agent of [Noble Resources] also lives in Sydney. The agent and the arbitrators may have in connection with each other, and the impartiality of this arbitration may be in doubt. Without prejudice [Sino Dragon] requests for non-Australian arbitrators.

51    The Tribunal responded, by an email from Mr Kay Hoyle on 24 February 2015, asking Sino Dragon to confirm whether it wished to file any evidence to accompany its Statement of Response. The Tribunal also invited Noble Resources to reply to the objections to jurisdiction of the Tribunal based upon (i) invalidity of the arbitration agreement, and (ii) the nationality of the members of the Tribunal. The Tribunal observed that Mr Kay Hoyle was a British national who is an Australian resident but not an Australian citizen. In its Rejoinder, Sino Dragon said that Australia shares the same cultural system with the “British Commonwealth of Nations”.

52    It appears that on 27 March 2015, an email was sent by Sino Dragon seeking “withdrawal of the Tribunal”. This email was not before the Court, but it is referred to in the reasons for decision of the appointing authority in deciding this application. It seems that the application was made on 27 March 2015 as a consequence of the correspondence described above.

53    Following the filing of submissions, Sino Dragon’s grounds for challenge became (i) cultural bias, (ii) potential conflict of interest as all the Tribunal members and claimant’s counsel have offices in Sydney, and (iii) various other procedural reasons.

54    On 8 May 2015, Mr Williams QC rejected the application for three reasons: (i) the application should have challenged the members individually, not the Tribunal as a whole, (ii) the challenge was out of time, and (iii) there was no justifiable doubt as to any of the Tribunal member’s impartiality or independence.

55    The third challenge was brought by Sino Dragon on 27 August 2015. The solicitors who had been appointed to act for Sino Dragon emailed that challenge to the appointment of Mr Bonnell and Mr Kay Hoyle to (i) the solicitors for Noble Resources, (ii) Mr Kay Hoyle, and (iii) Mr Williams QC. The email was also copied to Mr Mehigan and Mr Bonnell.

56    As the Tribunal later explained, the three objections were as follows:

(1)    the appointing authority failed to appoint the presiding arbitrator;

(2)    Mr Mehigan and Mr Bonnell failed to appoint Mr Kay Hoyle in accordance with Article 9 of the UNCITRAL Arbitration Rules; and

(3)    Mr Bonnell failed to disclose a conflict of interest to the appointing authority, referring to a transaction in which Mr Bonnell’s firm, Malleson Stephen Jaques (as it was then), acted in 2005 and the CVs of Mr Bonnell and Mr Kay Hoyle.

57    On the same day, 27 August 2015, Mr Kay Hoyle responded on behalf of the Tribunal. Mr Kay Hoyle’s email demonstrates that the Tribunal considered the three objections and expressed views on them:

(1)    the first substantive paragraphs of the email which begin with “The Tribunal understand the Respondent essentially raises three objections as follows”;

(2)    the next substantive paragraphs which contain the circumstances surrounding the issues about which the challenge is concerned and which begin “The Tribunal notes the following”; and

(3)    the conclusions which begin “In light of the above, the Tribunal’s views on the three objections raised by the Respondent in its e-mail today are as follows…”.

58    Counsel for Sino Dragon submitted that by this email the Tribunal had not decided on the challenge. He submitted (at 72) that there was a requirement that

the arbitral tribunal shall decide on the challenge. Now, that’s exactly what they didn’t do. They have failed to exercise their jurisdiction. They have purported individually to decide for themselves their own powers and rights.

59    Counsel for Sino Dragon’s submission was based upon the paragraph in the conclusion of Mr Kay Hoyle’s email. In his penultimate sentence, after expressing the Tribunal’s views, Mr Kay Hoyle said that “neither Mr Bonnell nor I consider that there is a proper basis on which we should withdraw”.

60    I accept the submission by counsel for Sino Dragon that there was no determination of the challenge by the Tribunal. Counsel for Noble Resources also did not submit otherwise. However, the approach taken by Mr Bonnell and Mr Kay Hoyle was exactly what was required by Article 13(3) of the UNCITRAL Arbitration Rules. As I have explained, under the UNCITRAL Arbitration Rules, Article 13(3), the decision whether the arbitrator will withdraw is a decision for the arbitrator. It is not a decision for the Tribunal.

61    There is, however, no reason why the arbitrator cannot consult the Tribunal and why the view of the Tribunal cannot inform the decision of the arbitrator on whether to withdraw. This is plainly what happened in this case. The penultimate sentence of the 27 August 2015 email from Mr Kay Hoyle was expressed in the words of Article 13(3) of the UNCITRAL Arbitration Rules. They had not adjudicated upon the challenge. They had declined to withdraw. They had done so after considering the view of the Tribunal.

62    As I have explained, although the challenged arbitrators had declined to withdraw, the effect of Article 13(4) is that if by 11 September 2015 (ie 15 days after 27 August 2015) all parties did not agree to the challenge, Sino Dragon could elect to pursue it. It could do so, within 30 days from 27 August 2015 by seeking a decision on the challenge by the appointing authority.

63    The period of time which Sino Dragon has to elect to seek a decision on the challenge by the appointing authority has not yet expired.

64    Sino Dragon submits that this Court should determine the challenge even though the appointing authority has not yet considered it. In opening his reply submissions, counsel for Sino Dragon said this (ts 68):

the harsh facts are that we have already referred these issues to the appointing authority on 27 August. We’ve not heard from him. It’s now 16 September. Nothing has happened.

65    One reason why Sino Dragon may not have heard from the appointing authority is because it is unclear whether an election was made by it. Sino Dragon and Noble Resources are in dispute about whether an election has been made. Sino Dragon submits that an election under Article 13(4) was made by copying the appointing authority on the email containing the challenge. The short point, however, is that since the time for any election has not yet expired Sino Dragon could send a further email at any time until the time period expires to put the point beyond doubt.

66    Another reason why Sino Dragon may not have heard from the appointing authority is because until recently the 15 day period for the parties to agree to the challenge had not expired.

67    Perhaps the most obvious reason why Sino Dragon has not heard from the appointing authority is because it commenced this proceeding in this Court to have the challenge heard by a court. It is unsurprising that the appointing authority, even if he had taken the view that an election had been made, would attempt to determine issues before the court and upon which he had received no submissions. Indeed, it would have been very surprising if he had attempted to do so.

This Court’s power to consider a challenge to the arbitrators

68    Counsel for Sino Dragon submitted that this application was primarily based upon Article 13(3) of the Model Law. Counsel also said that he also relied upon an independent common law jurisdiction to remove an arbitrator. At one point he also relied upon Article 14 of the Model Law although this was only faintly pressed.

69    Each of these points is considered separately.

Article 13(3) of the Model Law

70    The International Arbitration Act, by s 16, gives the force of law to the Model Law.

71    Section 18(3)(c) of the International Arbitration Act provides that in any case the Federal Court of Australia is taken to have been specified in Article 6 of the Model Law as a court competent to perform the functions referred to in Article 13(3).

72    Article 13 of the Model Law provides for the procedure for a challenge to an arbitrator as follows:

Challenge procedure

(1)    The parties are free to agree on a procedure for challenging an arbitrator, subject to the provisions of paragraph (3) of this article.

(2)    Failing such agreement, a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstance referred to in article 12(2), send a written statement of the reasons for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(3)    If a challenge under any procedure agreed upon by the parties or under the procedure of paragraph (2) of this article is not successful, the challenging party may request, within thirty days after having received notice of the decision rejecting the challenge, the court or other authority specified in article 6 to decide on the challenge, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.

73    As counsel for Noble Resources correctly submitted, Sino Dragon and Noble Resources had agreed on a procedure for challenging an arbitrator. Clause 39.2 of their contract provided for the arbitration to be conducted in accordance with the UNCITRAL Arbitration Rules which provide for the procedure for challenges to arbitrators.

74    I have described above the effect of the UNCITRAL Arbitration Rules concerning challenges. Counsel for Noble Resources submitted that the existence of this contractually agreed procedure, by incorporation of the UNCITRAL Arbitration Rules, has the effect that Article 13(2) of the Model Law has no effect in this case. In effect, counsel for Noble Resources submitted that “failing such agreement” means “failing such agreement described in Article 13(1)”.

75    Counsel for Sino Dragon submitted that Noble Resources’ construction of Article 13(2) was a “highly narrow and restrictive reading” of the words (ts 69). But he did not explain how “failing such agreement” could mean anything other than “failing such agreement described in Article 13(1)”. I do not accept his submission. Article 13(2) is a default rule that applies “failing such agreement” as described in Article 13(1). Since there was such agreement in this case, Article 13(2) does not apply.

76    Since Article 13(2) does not apply, the power of this Court under Article 13(3) is enlivened only “if a challenge under any procedure agreed upon by the parties … is not successful”. The challenge upon which Sino Dragon relied was the only challenge which would not be outside the 30 day period for requesting this Court to “decide on the challenge”. That challenge was the third challenge brought on 27 August 2015, described above at [55].

77    The 27 August 2015 challenge under the procedure agreed by the parties had not been concluded when this application was brought. Indeed, on Sino Dragon’s own submissions the challenge is currently on foot before the appointing authority. In these circumstances, there is no power for this Court to determine the challenge under Article 13(3) of the Model Law.

78    This is sufficient to dispose of Sino Dragon’s submission that this Court has power based on Article 13(3) of the Model Law. However, even if this Court had power under Article 13(3), there may be further difficulties for Sino Dragon. One difficulty, to which counsel for Noble Resources referred, may be that the reasons for the challenge advanced in this Court do not all correspond with the reasons for the challenge under the UNCITRAL Arbitration Rules. There may be a question whether an unsuccessful “challenge under any procedure agreed upon by the parties” entitles the unsuccessful party to ask the Court to decide the challenge on only the grounds which were advanced in the agreed procedure, or whether new grounds can be raised. I need not determine this issue. But it is another reason why it is appropriate that any challenge in this case be first determined according to the agreed procedure before the challenging party requests this Court to decide on the challenge under Article 13(3) of the Model Law.

The alleged implied power at common law

79    Counsel for Sino Dragon submitted that if Article 13(3) of the Model Law did not apply then there was a common law power for this Court to remove an arbitrator. This was a surprising submission for four reasons.

80    First, Article 5 of the Model Law provides that in “matters governed by this Law, no court shall intervene except where so provided in this Law”.

81    The Secretary General, in a report on the draft text of the Model Law, explained that Article 5

requires that any instance of court involvement be listed in the model law. Its effect would, thus, be to exclude any general or residual powers given to the courts in a domestic system which are not listed in the model law. The resulting certainty of the parties and the arbitrators about the instances in which court supervision or assistance is to be expected seems beneficial to international commercial arbitration.

(Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration – Report of the Secretary-General, 18th sess, UN Doc A/CN.9/264, 18 (3-21 June 1985))

82    Hence, in NCC International AB v Alliance Concrete Singapore Pte Ltd [2008] SGCA 5; [2008] 2 SLR(R) 565, 571 [22], V K Rajah JA emphasised that Article 5 therefore requires “all instances of court involvement in arbitration proceedings to be specifically stipulated, thus excluding any general or residual powers of domestic courts in relation to matters which are prescribed as governed by the Model Law”. The same point has been made, often in emphatic terms, in many other cases: Western Oil Sands Inc v Allianz Insurance No et al [2004] ABQB 79 at [30]-[32] (Hawco J); Mitsui Engineering & Shipbuilding Co Ltd v Easton Graham Rush and another [2004] SGHC 26; [2004] 2 SLR(R) 14, 17-18 [14]-[16], 20-21 [21] (Woo Bih Li J); Sunway Damansara Sdn Bhd v Malaysia National Insurance Bhd & Anor [2008] 3 MLJ 872, 884 [21] (Aziah Ali J); Compagnie Nationale Air France v Mbaye [2003] RJQ 1040 at [59]-[60] (Mailhot JA delivering the reasons of the Court). See also Compagnie Nationale Air France v Libyan Arab Airlines [2000] RJQ 717 [51] “un des grands principes sous-tendant l'arbitrage commercial international est l'autonomie et l'efficacité de l'arbitrage. Ce principe est d'ailleurs consacré à l'article 5” (Sévigny JCS).

83    Secondly, the submission amounts to saying that an unrestricted regime at common law exists alongside the careful regime in Article 13 which (i) limits the circumstances in which the court can “decide on the challenge”, (ii) imposes time restrictions by which the challenging party can approach the court, and (iii) prevents any appeal from the court’s decision. Such a conclusion would wholly undermine the efficacy of Article 13.

84    Thirdly, the submission is inconsistent with the approach taken by Hammerschlag J to Article 16(3) in teleMates (previously Better Telecom) Pty Ltd v Standard SoftTel Solutions Pvt Ltd [2011] NSWSC 1365 [50]-[53]. Counsel for Sino Dragon submitted that this decision was “plainly wrong” (see Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 151-152 [135] (the Court)). Unfortunately, counsel did not make any submissions about the reasoning in teleMates. Nor did he explain why Hammerschlag J was plainly wrong to apply, by analogy, the High Court decision in David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265 in relation to the mandatory nature of time restrictions.

85    Fourthly, and as counsel for Sino Dragon properly accepted, there was no authority in support of his submission (ts 31). To the contrary, all authority that exists is against it.

86    I reject the submission that any common law power exists for the court to decide a challenge to an arbitrator outside the circumstances in Article 13(3) of the Model Law.

The claim based on Article 14 of the Model Law

87    The originating application brought by Sino Dragon also relied upon Article 14 of the Model Law which is entitled “Failure or impossibility to act”. That Article provides as follows:

(1)    If an arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay, his mandate terminates if he withdraws from his office or if the parties agree on the termination. Otherwise, if a controversy remains concerning any of these grounds, any party may request the court or other authority specified in article 6 to decide on the termination of the mandate, which decision shall be subject to no appeal.

(2)    If, under this article or article 13(2), an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, this does not imply acceptance of the validity of any ground referred to in this article or article 12(2).

88    Counsel for Sino Dragon appeared to submit that Article 14 of the Model Law applied so that this Court should terminate the mandate of Mr Bonnell and Mr Kay Hoyle because they had failed to act without undue delay.

89    At one point it seemed that the submission by counsel for Sino Dragon was that the decision by the Tribunal on 1 September 2015 to defer consideration of jurisdictional issues to the hearing of the arbitration involved a failure to act without undue delay. I do not accept this submission.

90    First, the question of a failure to act without undue delay must be considered in the context of the whole of the arbitration. None of the matters set out in the chronology to these proceedings in these reasons suggest a failure to act without undue delay. They suggest rather the contrary. Indeed, there is some tension between the submission of undue delay and other submissions made by counsel for Sino Dragon in relation to the substance of the bias application that the Tribunal had acted with undue haste in its decisions concerning the timing and order of the filing of Memorials.

91    Secondly, and in any event, I do not accept that the deferral of consideration of jurisdictional issues to the hearing involves undue delay within the meaning of Article 14. It cannot have been the intention of Article 14 for a Court to exercise a form of supervisory jurisdiction to terminate the mandate of arbitrators based upon second-guessing a decision which is effectively a procedural and case management decision.

92    Thirdly, and in any event, this decision of the Tribunal was not merely within the bounds of appropriate discretion. It was the most appropriate decision to make. There have now been a number of preliminary issues raised. The arbitration hearing date is looming. The decision of the Tribunal to incorporate the resolution of jurisdictional issues with the other issues in dispute, and to programme the evidence and submissions on all issues concurrently, was an efficient and effective manner of moving the matter to the date for the hearing of the arbitration.

The claims for production of documents and issue of subpoenas

93    Sino Dragon seeks orders by this court for production of 12 of 22 documents of which it applied to the Tribunal for production but which requests were either (i) refused on the grounds that the documents were irrelevant, (ii) refused on the ground that the documents had already been produced, or (iii) allowed but with redactions. In effect, Sino Dragon seeks to have this court revisit a procedural decision by the Tribunal. Sino Dragon seeks to have this Court issue three subpoenas for production of the documents. These proposed subpoenas were provided to Noble Resources but they were not required to be filed.

94    The power for this Court to require a party to produce documents is contained within ss 23 and 23A(3) of the International Arbitration Act.

95    Section 23 provides:

Parties may obtain subpoenas

(1)    A party to arbitral proceedings commenced in reliance on an arbitration agreement may apply to a court to issue a subpoena under subsection (3).

(2)    However, this may only be done with the permission of the arbitral tribunal conducting the arbitral proceedings.

(3)    The court may, for the purposes of the arbitral proceedings, issue a subpoena requiring a person to do either or both of the following:

(a)    to attend for examination before the arbitral tribunal;

(b)    to produce to the arbitral tribunal the documents specified in the subpoena.

(4)    A person must not be compelled under a subpoena issued under subsection (3) to answer any question or produce any document which that person could not be compelled to answer or produce in a proceeding before that court.

(5)    The court must not issue a subpoena under subsection (3) to a person who is not a party to the arbitral proceedings unless the court is satisfied that it is reasonable in all the circumstances to issue it to the person.

(6)    Nothing in this section limits Article 27 of the Model Law.

96    The Tribunal has not given permission for the issue of subpoenas under s 23(2).

97    Section 23A provides:

Failure to assist arbitral tribunal

(1)    A party to arbitral proceedings commenced in reliance on an arbitration agreement may apply to a court for an order under subsection (3) if a person:

(a)    refuses or fails to attend before the arbitral tribunal conducting the arbitral proceedings for examination when required to do so under a subpoena issued under subsection 23(3); or

(b)    refuses or fails to attend before the arbitral tribunal when required to do so by the arbitral tribunal; or

(c)    refuses or fails to produce a document that the person is required to produce under a subpoena issued under subsection 23(3); or

(d)    refuses or fails to produce a document that the person is required to produce by the arbitral tribunal; or

(e)    appearing as a witness before the arbitral tribunal:

(i)    refuses or fails to take an oath or to make an affirmation or affidavit when required by the arbitral tribunal to do so; or

(ii)    refuses or fails to answer a question that the witness is required by the arbitral tribunal to answer; or

(f)    refuses or fails to do any other thing which the arbitral tribunal may require to assist the arbitral tribunal in the performance of its functions.

(2)    However, an application may only be made under paragraph (1)(b), (d), (e) or (f) with the permission of the arbitral tribunal.

(3)    The court may, for the purposes of the arbitral proceedings, order:

(a)    the person to attend before the court for examination or to produce to the court the relevant document or to do the relevant thing; and

(b)    the person, or any other person, to transmit to the arbitral tribunal one or more of the following:

(i)    a record of any evidence given in compliance with the order;

(ii)    any document produced in compliance with the order, or a copy of the document;

(iii)    particulars of any other thing done in compliance with the order.

(4)    A person must not be compelled under an order made under subsection (3) to answer any question or produce any document which that person could not be compelled to answer or produce in a proceeding before that court.

(5)    The court must not make an order under subsection (3) in relation to a person who is not a party to the arbitral proceedings unless:

(a)    before the order is made, the person is given an opportunity to make representations to the court; and

(b)    the court is satisfied that it is reasonable in all the circumstances to make the order in relation to the person.

(6)    Nothing in this section limits Article 27 of the Model Law. None of the conditions in s 23A(1) or s 23A(2) is satisfied. In particular, s 23A(3) is premised upon assistance to the Tribunal or furtherance of a previous subpoena ordered by the Court.

98    None of the conditions in s 23A(1) or s 23A(2) is satisfied. As those subsections show, s 23A(3) is premised upon assistance to the Tribunal.

99    Counsel for Sino Dragon submitted that despite s 23(2), and despite s 23A, permission for the issue of subpoenas was not required because this Court could require the production of documents under Article 17J of the Model Law.

100    I reject this submission for four reasons.

101    First, it is contrary to the manifested intention of ss 23 and 23A. Counsel for Sino Dragon accepted that the effect of his submission that provisions such as s 23 should be read as though s 23(6) had also included an additional subsection s 23(7) which provided that nothing in s 23 limited Article 17J of the Model Law (ts 79). This is an illegitimate application of construction and implication: see Taylor v Owners - Strata Plan No 11564 [2014] HCA 9; (2014) 88 ALJR 473, 483 [38] (French CJ, Crennan and Bell JJ).

102    Secondly, Article 17J provides for the power of the Court to issue an interim measure in relation to arbitration proceedings. An interim measure might include matters such as an interim injunction. The concept of an “interim measure” does not include making a procedural order that the Tribunal has consciously refused to make.

103    Thirdly, the approach to Article 17J suggested by Sino Dragon is inconsistent with the narrow purpose for that provision. It is really a provision which clarifies the existence of power rather than expands power. As Mr Holmes QC and Dr Brown explain, when Article 17J was introduced in the 2006 amendments adopted by UNCITRAL, it was included “to put it beyond any doubt that the existence of an arbitration agreement does not infringe on the powers of the competent court to issue interim measures and that the party to such an arbitration agreement is free to approach the court with a request to order interim measures”: Holmes M and Brown C, The International Arbitration Act 1974: A Commentary (LexisNexis, 2011) 201 citing UNCITRAL Explanatory Note 2006, p 31 [30]. As the UNCITRAL Working Group II (Arbitration and Conciliation) explained, in some States the law and the courts had no power to issue interim measures for protection in arbitration: See UNCITRAL Working Group II, Settlement of Commercial Disputes - Preparation of Uniform Provisions on Interim Measures of Protection, 36th sess, A/CN.9/WG.II/WP.119 (4-8 March 2002), [8]-[9], [20], [75].

104    Simply removing a potential obstacle to the power of the Court to issue interim measures does not mean that the power should be exercised or that any power would be expanded. In the Report of the United Nations Commission on International Trade Law on the Work of its Thirty-Ninth Session, GAOR, 61st sess, Agenda Item 77, Supp No 17, A/61/17 (19 June - 7 July 2006) [139]-[142] it was said:

139.    … It was clarified that the purpose of article 17 undecies was to preserve the power of courts to issue interim measures in support of arbitration, but should not be understood as expanding the powers of the court for interfering in the arbitral process. The Commission agreed that that matter should be clarified in any explanatory material to that provision.

…

142.    The commission agreed that any explanatory material to article 17 undecies should clarify that the court could exercise jurisdiction on arbitration matters, whether the place of arbitration is located in the enacting State or in another State and that the provision should not be construed as expanding the territorial jurisdiction of courts.

105    Fourthly, and independently of the scope of Article 17J, the power under that article “should be exercised very sparingly and in circumstances in which such orders were effectively the only means by which the position of a party could be protected until an arbitral tribunal was convened”: Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666, 694 [96] (Martin CJ; Buss JA agreeing) quoting from Cetelem SA v Roust Holdings [2005] ECWA Civ 618; [2005] 4 All ER 52.

106    I decline to make any order under Article 17J of the Model Law.

107    In written submissions, Sino Dragon also relied upon Article 27 of the Model Law as providing a power for the Court to make an order for production when the Tribunal had refused to do so. Article 27 provides for “the Tribunal, or a party with the approval of the Tribunal, to request court assistance in taking evidence”.

108    I am content to proceed on the basis that Article 27 includes a power to grant subpoenas. Counsel for Sino Dragon submitted that this power had been held to exist in a decision of Kaplan J in Vibroflotation AG v Express Builders Co Ltd [1994] HKCFI; [1995] 1 HKLR 239. However, as Kaplan J explained at [15], there was no argument before him that disputed that “Article 27 is the governing article in relation to the issue of a subpoena”. No submission was made concerning whether the compulsory production of documents involves “assistance in taking evidence”. Further, not only was there no argument on this point, but it is unclear whether Hong Kong has a legislative provision which is equivalent to s 23A.

109    It is unnecessary to decide this interesting issue. The reason why it is unnecessary to do so is because even if it is accepted that the issue of a subpoena is “assistance in taking evidence”, Article 27 plainly requires that the Tribunal seek that assistance from this Court or that a party proceed with the approval of the Tribunal. The Tribunal has not sought assistance and Sino Dragon does not have the approval of the Tribunal in seeking assistance.

110    In the paragraph in Vibroflotation AG which was immediately following that which was relied upon by counsel for Sino Dragon, Kaplan J says that the “application for a subpoena in this case was made by a party, but it would not have been a proper request unless made with the approval of the arbitrator”.

111    I decline to make any order under Article 27 of the Model Law.

The proposed declaration of invalid appointment

112    In the originating application, Sino Dragon sought a declaration that Mr Kay Hoyle and Mr Bonnell had not been appointed properly in accordance with the UNCITRAL Arbitration Rules.

113    Counsel for Sino Dragon described his arguments on this point as “jurisdictional”. He submitted, for instance, that the appointment of Mr Kay Hoyle “didn’t occur within the 30 days referred to in article 9, rule 3. Therefore, Mr Kay Hoyle was not lawfully appointed and he is not exercising jurisdiction with the agreement of the parties” (ts 42).

114    I do not accept that this Court can intervene and make a ruling about the jurisdiction of the Tribunal prior to the Tribunal having made that determination. Article 16(3) of the Model Law provides that the Tribunal may rule on a plea that it has a lack of jurisdiction either as a preliminary question or as an award on the merits. Article 16(3) then provides for a prescribed procedure, including time limits, by which a party can request a court to decide the matter if the Tribunal rules on it as a preliminary question.

115    In his Honour’s tightly reasoned decision in teleMates, Hammerschlag J held that Article 16(3), read with Article 5, did not permit the possibility of extending time for a request for a court to decide the matter following a preliminary ruling by the Tribunal. The principles underlying this reasoning, and underlying Article 16 when read with Article 5, apply a fortiori to a request for a court to decide the matter without a preliminary ruling from the Tribunal. Although counsel for Sino Dragon submitted that the teleMates decision was plainly wrong, he did not address any of the reasoning in that decision.

116    In any event, even if there were power in this Court to make a declaration in these circumstances, a declaration is a discretionary remedy. There are strong reasons in this case why I would decline to exercise any discretion to make a declaration.

117    On 1 September 2015, the Tribunal, by Mr Kay Hoyle, contacted the parties and informed them that the Tribunal has decided to “[d]eal with all jurisdictional issues on which the Respondent relies at the hearing on 26 October 2015”. The decision by the Tribunal to defer this matter to the hearing was consistent with this option contemplated by Article 16(3) of the Model Law. The decision by the Tribunal was also made for reasons of apparent efficiency, to allow the Tribunal to consider the issue collectively with other issues. Any power to make a declaration by this Court, either of jurisdiction or of lack of jurisdiction, in the absence of any determination by the Tribunal would be outside the Article 16 regime and therefore subject to appeal. Making a declaration in this case would be contrary to the goal of efficient progress of the arbitration.

Conclusion

118    Each of the grounds of this application must be dismissed. There is either no power, or it would be inappropriate to exercise power, to make each of the orders sought by Sino Dragon.

119    The effect of my decision on this issue of the Court’s power is that it is neither necessary nor appropriate for me to express any conclusion on the issues raised by Sino Dragon concerning the issue of apprehended bias. I express the issue as one of “apprehended bias” in neutral terms because there was substantial dispute between the parties concerning the appropriate test to apply and the meaning of s 18A of the International Arbitration Act.

120    The reason why it is not appropriate for me to express any views on this matter is because to do so would usurp the process provided by the International Arbitration Act and Model Law in circumstances in which it is Sino Dragon’s own position that the matter is currently before the appointing authority. The pejorative overtones of counsel’s submission that the appointing authority has “held his hand” (ts 73) and delayed in making any decision concerning the challenge must be rejected. Even assuming (which I do not decide) that an election has been made by Sino Dragon under Article 13(4), the appointing authority was only notified of the issue a week before this application was brought. The 15 day period for the parties to agree to the challenge, or for the arbitrator to withdraw, had not even expired when this application was brought before this Court. On no view could the appointing authority be criticised for failing to make a decision on a matter, without submissions, while the same issue was being raised in this Court by the challenging party.

Associate:

Dated:    17 September 2015