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Federal Court clarifies limits on conditions imposed on a stay under the International Arbitration Act

In a New Chambers trifecta, former head of chambers, his Honour Justice Stewart, handed down judgment clarifying the limits of a court’s power to impose conditions on a stay of proceedings that are referred to international arbitration under s 7(2) of the International Arbitration Act 1974 (Cth). Catherine Gleeson and Jesse Kennedy represented opposing parties in the application for a stay.

The proceedings concerned one of several disputes that have arisen from an incident when scores of containers were lost overboard the vessel APL England in May 2020, some of which washed up along the coast of New South Wales.

It was agreed between the parties that the entire proceedings were to be stayed under s 7 of the International Arbitration Act by reason of the existence of an applicable and binding international arbitration agreement. In dispute, however, was the extent of any conditions to be imposed on that stay. Under s 7(2) of the Act, a court may impose “such conditions (if any) as it thinks fit” when staying proceedings and referring the same to arbitration.

Although the words in s 7(2) are of ostensible width, Stewart J found that they need to be read in context. An important context of s 7 of the International Arbitration Act is that it seeks to implement Australia’s obligations under art II(3) of the New York Convention to uphold international arbitration agreements and refer parties to arbitration where a valid and binding arbitration agreement is in place. The New York Convention does not refer to courts imposing any conditions upon a stay, which suggests that the power given in s 7(2) of the Act was not intended to be limitless.

In particular, his Honour found that the conditions that can be imposed on a stay under s 7(2) do not include conditions that would interfere with the jurisdiction and power of the arbitral tribunal or alter the rights of the parties under their arbitration agreement. That would be contrary to the purpose of s 7, which is to uphold and enforce, not alter or undermine, the rights under an arbitration agreement.

Applying these principles, Stewart J found that the Court should not, absent the consent of all parties, impose as a condition of the stay of the court proceedings that any arbitral proceedings are also stayed pending resolution of related issues in other related proceedings. A condition of that kind was sought in this case because all parties to the proceedings that were being referred to arbitration were also parties in related court proceedings involving similar issues and which were not the subject of any stay.

His Honour also had reservations that the court could make, when imposing a condition under s 7(2), orders similar to an injunction (in this case, restraining one party from making certain claims in the related court proceedings).

Justice Stewart’s reasons align with views previously expressed by Kirby P in O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601 at 622 and Martin CJ (McLure P and Buss JA relevantly agreeing) in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66 at [93]. The decision joins, accordingly, a line of authority and academic commentary that may cast some doubt over the correctness of decisions such as Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 at 28-29 where, in the context of proceedings involving both arbitrable and non-arbitrable matters, courts have stayed the arbitral matters on the condition that any arbitration await the resolution of the non-arbitral matters in court. Arguably, such a condition unduly interferes with the arbitral tribunal’s jurisdiction to decide whether or not its own proceedings should await the outcome of related court proceedings, and is therefore arguably beyond the power granted in s 7(2) of the Act.

Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606, available at: http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2021/606.html

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