Pushing enforcement too far? : EBJ21 v EBO21

In a recent judgment (EBJ21 and another v EBO21 and another [2021] FCA 1406), the Federal Court of Australia (the Court) dismissed an application for recognition and enforcement of an arbitral award which was maintained despite the award having been paid. The Court's robust treatment of the application – which was found to have been motivated by an attempt to undermine the confidentiality of the arbitration – illustrates the pro-arbitration stance of Australian courts, as well as some important distinctions about the nature of arbitral awards under Australian law. Jeremy Quan-Sing (Partner), William Ho (Senior Associate) and William Stone (Associate) from Allens report.

Background and the issues before the Court

The parties entered into an agreement concerning a multi-level marketing scheme. The agreement required disputes to be resolved by confidential arbitration in Sydney, Australia under the Australian Centre for International Commercial Arbitration (ACICA) rules.

A dispute arose between the parties and arbitration was commenced, which was ultimately settled at mediation. As part of the settlement terms the parties agreed to the arbitrator making an award which included an order that the respondents pay a specified amount to the applicants within 30 days (the Award).

On the same day as the award was made, the applicants filed an application in the Court, in reliance on Article 35 of the UNCITRAL Model Law (Model Law) (as adopted by the International Arbitration Act 1974 (Cth)), that the arbitral award be enforced by the Court.

Shortly thereafter, and still within the 30 days for the respondents to make payment, the respondents applied for orders to protect the confidentiality of the dispute, including the identity of the parties, and paid the full amount owing to the applicants.

Despite payment having been made, the applicants continued to press their application, although they amended it to seek that court enter judgment in terms of the award, and make a declaration that the Award be recognised as binding.

The applicants based their argument on Article 35 of the Model Law which states that an arbitral award "shall be recognized as binding and, upon application in writing to the competent court, shall be enforced" (emphasis added), subject to limited exceptions under Article 36. Those exceptions, the applicants contended, did not include full payment of the Award.

The Federal Court's decision

Justice Stewart rejected the applicants' arguments. In doing so, his Honour clarified the place of court recognition, and enforcement, and why the applicants' position was not acceptable:

• There is a distinction between the "recognition" and "enforcement" of an arbitral award. The former happens by way of Art.35(1) of the Model Law, with the award thereby becoming binding on the parties to the arbitration agreement on and from the date it is made. In contrast, enforcement only occurs when a court has made an order to that effect [30-31].
• As recognition happened by way of law, without the need for an order, an application for an order to enter judgment in terms of the award was therefore one for enforcement [32-39]. In turn, the subject of an enforcement order are the rights and obligations created by the award. As those had been discharged by payment, there were no grounds for such an order [40-49].
• As to the request for a declaration recognising the award, a court might give effect to the binding nature of an award in a number of ways. Whilst a declaration was one, it is a discretionary remedy and directed to the determination of real controversies. Here there was no controversy at all as to the award’s validity, and the award was recognisable on its own, so the application was denied.

This left the respondents' application that the proceedings before the Court should remain confidential (for example by using pseudonyms and restricted court file access). Justice Stewart identified a number of relevant sources of confidentiality attaching to the arbitration, from common law, to the IAA and the parties' contractual arrangements. On the other hand was the interest of the public administration of justice. Ultimately the question, under the Court's rules, was whether the orders sought were necessary to prevent prejudice to the administration of justice [59-73]. In the Court's view, this was made out. The applicants lacked any substantial legitimate purpose for their applications. So, in such circumstances, the Court's procedures should not be used to facilitate a result which would make public what would otherwise be confidential; to do so would prejudice the administration of justice [74-89].

Comment and conclusions

This decision clearly demonstrates the Court's sensitivity to detect when parties are seeking to use court mechanisms to subvert the arbitration process, or as it was put by the Court, to use court mechanisms as "a strategy to lift the veil of confidentiality from the arbitral proceeding". The application was brought, and maintained, in circumstances where there was arguably no need to pursue it – and the Court pushed back in its reluctance to grant an order and declaration, both of limited utility, to the applicants, and in its protection of the confidentiality of the arbitration. The Court's decision is important as a key factor behind the efficacy of private arbitration is the ability for parties to conduct proceedings in private and within the terms of their agreement. Clearly, this efficacy would be eroded through unnecessary disclosure of the dispute in the public domain.

The decision should therefore give confidence to parties participating in private arbitration in Australia that the veil of confidentiality will not easily be lifted.

Finally, whilst it is understandable that an award creditor might wish to bring an enforcement application at an early stage in order to maintain pressure on the award debtor and to ensure compliance with an award, premature action may turn out to be counterproductive and considered as having no legitimate purpose in circumstances where the award debtor has not yet defaulted on its obligations under any award.

Allens is a leading Australian independent partnership, operating in integrated alliance with Linklaters LLP.