THE CLOAK OF CONFIDENTIALITY IN ARBITRATION IS NOT EASILY REMOVED: FEDERAL COURT OF AUSTRALIA DECLINES TO ENFORCE A CONSENT AWARD THAT HAD BEEN SATISFIED

In the recent case of EBJ21 v EB021 [2021] FCA 1406 award creditors sought recognition and enforcement of an arbitral award that had already been paid in time and in full. The award debtors resisted the application arguing that it was an improper attempt to circumvent the agreed upon confidentiality arrangement by bringing the dispute into the public arena of a court proceeding. The Federal Court of Australia agreed.

The Court held that there was no justification to recognise or indeed enforce an award that had been satisfied since it enjoyed the force of law from the date it was created and the obligations imposed by it had already been discharged. The Court instead reiterated the importance of confidentiality in arbitration and upheld the award debtor’s application for suppression orders.

The case serves as an important reminder - especially in light of Hub Street and Jishi Venture also decided by the Court this year - that Courts are reticent to interfere with an arbitral agreement and the policy reasons behind arbitration. Here, the Court determined that there was no justification for recognising and enforcing an award that had already been satisfied. The relief sought could not be explained other than as a strategy to lift the veil of confidentiality from the arbitration proceedings.

Relevance of Decision

This decision:

• confirmed a distinction between enforcing and recognising an award;
• underlined that most awards are recognised at law from the date of the award;
• held that an award will not be enforced if the obligations under it (such as payment of a sum of money) have already been satisfied; and
• demonstrated that the enforcing Court will not lightly read down the confidentiality clause in an arbitration agreement.

Background

It is the procedural aspects of this decision, as opposed to the facts of the dispute, which are noteworthy.

The award was rendered on 5 May 2021. On the same day, and a month before payment of the award was due, the applicants filed an application relying on Article 35 of the UNCITRAL Model Law to seek enforcement of the award. On 21 May 2021, the respondents filed an interlocutory application seeking suppression and non-publication orders to protect their identities and other information about the dispute. On 22 May 2021, the respondents paid the full amount owing under the Award.

Enforcing an award typically consists of realising the award creditor’s right to payment, and the award debtor’s obligation to pay. It generally involves an application to a court and is only generally necessary if the award debtor refuses to pay the award. Article 36 of the Model Law enumerates the limited circumstances in which enforcement can be defeated. The applicants pointed out that the full payment of an award is not an enumerated exception to resist enforcement. The respondents, by contrast, relied on article 36(1)(b)(ii) of the Model Law to argue that recognition or enforcement may be refused if it would be contrary to public policy. The argument here was that as the amount had been paid in full and all obligations satisfied, there was no appropriate order that could be made. On their submission, the Court could not recognise an award if there was both: (a) no contest as to its authenticity, validity or legal efficacy; and (b) the pecuniary obligations owing had been completely discharged.

Enforcement vs Recognition of an Award

The Court clarified that a distinction existed between ‘enforcing’ and ‘recognising’ an arbitral award. An award obtains recognition as binding at law from the date it is rendered. Nothing more is needed. This was easily made out on the facts. Enforcement goes one step further. It occurs only upon application by a competent court.

Turning to the question of enforcement, the respondents opposed enforcement not because they did not in some way recognise the award, but because they sought to preserve their rights of confidentiality in the arbitration proceedings. To enforce an award sounding in money – as is the case here – an appropriate order would be simply to enter judgment for the sum concerned. It follows that it would be pointless to enter judgment against a party who had already paid the money in full. There are no longer any rights or obligations to enforce. For this reason, the declaration sought by the applicants was refused by the Court.

Confidentiality

An attractive feature of arbitration for some parties is the confidential nature of the dispute resolution process. Put simply, the Court explained that:

‘[c]onfidential arbitration can be attractive to parties wishing not to have their dirty laundry aired in public, or wishing to maintain an ongoing commercial relationship with each other by excluding interference or pressure that might come from their dispute being aired publicly’.[1]

On 21 February 2021, the parties settled their dispute in a confidential deed of settlement. The parties agreed to the confidentiality provisions contained in the 2016 ACICA Arbitration Rules. Notably, they provide that an application to the Court to enforce an Award does not benefit from the confidential protections which are typical of arbitration. The respondents pointed to this carve out to argue that in circumstances where the declaration sought would provide no meaningful change to the status quo, the application had no apparent purpose and was an abuse of process.

The Court flagged the tension between public and private interest; that while there is a strong public interest in open justice, it is similarly important that parties can have confidence that a prior agreement to confidentiality could not be easily eroded. The balance is struck by considering whether the making of a suppression order is necessary to prevent prejudice to the proper administration of justice.[2] The ‘administration of justice’ places a high value on processes not being used other than for substantial legitimate purpose. In sum, the Court made suppression orders so as to protect the confidentiality of the dispute.

Australia’s arbitration-friendly legal framework continues to be reinforced by the sophisticated consideration of international arbitration issues by Australian courts, further contributing to the rise of arbitration in Australia.

For more information, please contact Leon Chung, Partner, Guillermo Garcia-Perrote, Senior Associate, and Samara Cassar, Solicitor, or your usual Herbert Smith Freehills contact.

[1] [2021] FCA 1406 [68] (Stewart J).

[2] Ibid [72] (Stewart J).