Gutnick v Indian Farmers Fertiliser Cooperative Ltd [2016] VSCA 5
The Victorian Court of Appeal refused leave to appeal from orders enforcing a Singapore-seated award under the International Arbitration Act 1974 (Cth), holding that an award declaring agreements relating to the purchase of shares rescinded and ordering repayment of the price, without an express order returning the shares, restored the parties to their previous positions, so its enforcement was not contrary to public policy.
What the court decided
Indian Farmers Fertiliser Cooperative Ltd and Kisan International Trading Fze, the award creditors, obtained orders from Croft J, the primary judge, enforcing a foreign award under section 8(2) of the International Arbitration Act 1974 (Cth) (the Act) [1]. Joseph Isaac Gutnick and Legend International Holdings Inc (Legend), the award debtors, applied for leave to appeal against those orders [2]. The award creditors had bought 20 million shares in Legend for US$40.4 million under two agreements [5].
The arbitration was seated in Singapore and English law governed the agreements [6]. The arbitral tribunal found that the award debtors had induced the purchase by fraudulent misrepresentation, declared both agreements rescinded and ordered repayment of the purchase price with interest [7]. No order was made for the return of the shares, and Kisan International Trading Fze still held legal title to them [7], [8].
The award debtors resisted enforcement only on the public policy ground in section 8(7)(b), alleging no fraud, corruption or breach of natural justice [2], [10]. They argued that the award let the award creditors recover the price and keep the shares, a double recovery offending public policy [3], [17].
The primary judge accepted that enforcing an award that allowed double recovery would likely be contrary to public policy, and the award creditors did not argue otherwise on appeal [4], [19]. The Court cited the Full Federal Court's holding in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361 that the relevant public policy is the forum's, read narrowly as limited to its most basic principles of morality and justice [19].
The parties agreed that the enforcing court does not review the tribunal's decision on fact or law but reads the award under its governing law for its effect [20].
The Court stated that rescission is the act of the parties, which a court confirms; a court order is not a condition precedent to its effectiveness [23]. The Court set out the statement in Alati v Kruger (1955) 94 CLR 216 that equitable title revests upon a rescission that equity treats as effectual [23]. It also accepted that neither a court order nor an arbitral award can itself perfect legal ownership of shares, which is restored only when the register is altered [22]. The award debtors conceded that the declaration revested equitable title in them, with a right to require delivery of the shares, and the Court observed that rescission operates on the whole transaction [21], [25], [29]. In so far as the rescission confirmed in the award vested equitable rights in the award debtors, the Court held, the declaration was not a nullity pending the return of legal title [26].
Once enforced under section 8(2), the Court reasoned, the award became in effect an order of the Supreme Court, so that court's powers to prevent double recovery were available [27]. Those powers include the Supreme Court's equitable jurisdiction under section 29 of the Supreme Court Act 1986 (Vic) and its inherent powers [28].
Accepting the award creditors' contentions, the Court held that the award set both agreements aside from the beginning and put the parties back where they had been before entering into them [29]. On a further contention the Court accepted, the award debtors would have had to establish that, under Australian or English domestic law, the declaration would not or should not have been made without express consequential orders revesting the shares [29]. The tribunal did not declare that the award creditors could keep the shares; their claim was a conventional one for rescission [30]. Agreeing with the primary judge that the declaration restored the parties to their previous positions, the Court considered that the award "conforms with the public policy of Australia" [30].
The primary judge had accepted that section 8(7)(b) left a discretion to enforce even where enforcement would be contrary to public policy, exercisable in the most exceptional cases; he found the point unnecessary to decide, but said he would not have exercised it and held the Singapore enforcement and possible recourse to the tribunal irrelevant [4], [32]. By a notice of contention, the award creditors said he had misconstrued it [4], [33]. Because the public policy ground failed, the Court did not rule on the notice [33].
In joint reasons, Warren CJ, Santamaria and Beach JJA refused leave to appeal, the application having no real prospect of success [34].
Why it matters
The distinction between reading an award and reviewing it was the primary judge's, accepted by both sides [20]. In my view, an objection that an award of rescission omits consequential orders will face real difficulty where rescission under the governing law revests equitable title and the enforcing court can itself prevent double recovery.
The Court also saw the Supreme Court's own powers as an answer to the risk of double recovery [27]–[28]. Whether an award may still be enforced once a public policy objection is made out, and on what footing, was left undecided [33].
Readers should check the current text of the Act before relying on this leave decision.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.