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Keeping your 'dirty laundry' private - Upholding confidentiality in arbitration when things turn ugly

EBJ21 v EBO21 [2021] FCA 1406

Obligations of confidentiality are a key feature of private arbitration that make it a commercially attractive form of dispute resolution. The Federal Court's decision in EBJ21 v EBO21 [2021] FCA 1406 highlights that the courts recognise this, particularly when obligations of confidentially form part of the parties' agreement, along with the parties' statutory obligations, and will resist use of court processes to circumvent those obligations.

Background

The Agreement

The parties entered into an agreement relating to the promotion of the Applicants' products by the Respondents (Agreement). Relevantly, the Agreement provided that:

  • disputes arising between the parties ‘shall be settled by confidential arbitration administered by the Australian Centre for International Commercial Arbitration (AU) [ACICA] … administered under its commercial arbitration rules, and any judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction’;
  • the ‘arbitration proceedings shall be held in the city of Sydney, Australia’;
  • ‘Neither the parties nor the arbitrator(s) shall disclose the existence, content, or results of any arbitration without the prior written consent of both parties’; and
  • ‘Judgment on any award rendered by the arbitrator(s) may be entered in any court having jurisdiction’.

A dispute arose between the parties following allegations by the Applicants that the Respondents were in breach of the Agreement as they had commenced working with a competitor and had made false statements about the Applicants’ products. The Respondents terminated the Agreement.

The Applicants commenced proceedings against the Respondents and the competitor in a superior court in a foreign country. The originating process, which, the Federal Court in this case made a point of noting, was detailed and emotive in its allegations against the Respondents, was not served and was instead, published and maintained on the Applicants’ website. In that manner, the Applicants made that dispute public.

The arbitral proceedings and confidential settlement

The Applicants subsequently commenced arbitral proceedings in Australia, which ultimately settled following mediation. The settlement was recorded in a confidential deed of settlement between the parties (Settlement Deed), which provided that:

  • the arbitral proceeding was concluded to avoid the further cost and inconvenience of litigation and without any admission of liability;
  • the Respondents were to pay a specified amount to the Applicants as part of the settlement and within 30 days of the date of the award;
  • there were mutual releases between the parties from all claims, actions, costs and demands whatsoever in respect of or in any way connected to the facts or circumstances the subject of the arbitration proceeding;
  • the terms of the settlement were ‘strictly confidential and are not to be disclosed or permitted to be disclosed in any form, or any manner, either directly or indirectly, except … for the purpose of enforcing this agreement’; and
  • the Settlement Deed may be pleaded in any court as a bar to any action, suit, claim, cause of action or proceeding commenced or to be commenced by any party which is inconsistent with or contrary to the agreement.

The Application

Following the settlement, the arbitrator made the arbitral award (Award). On the same day, the Applicants filed an application in the Federal Court of Australia, seeking enforcement of the Award pursuant to Article 35 of the United Nations Commission On International Trade Law Model Law on International Commercial Arbitration (UNCITRAL Model Law), as adopted by the International Arbitration Act 1974 (Cth) (Application). The Applicants explained that they brought the Application, notwithstanding that the date for payment of the Award had not yet passed, because according to the Applicants, they required the security of a final award including the ability to enforce it, as a condition of resolving the arbitration.

The Respondents paid the amount specified in the Award to the Applicants, two weeks earlier than required under the terms of the Award and Settlement Deed. The Applicants maintained the Application, albeit the Applicants’ relief shifted from enforcement of the Award and judgment, to recognition of the Award and judgment.

Suppression Orders

The Respondents brought an interlocutory application seeking suppression and non-publication orders (Suppression Orders) so as to protect their identities and other information about the dispute. The Respondents claimed that the Application was an abuse of process aimed at circumventing the confidentiality agreements between the parties and having no other apparent purpose.

The Federal Court's decision

The Court dismissed the Application, finding that:

  • the Award was recognised as binding on the parties, by operation of Article 35(1) of the UNCITRAL Model Law;
  • the Applicants had failed to demonstrate that there was a controversy between the parties or utility in a court order, giving rise to or justifying a declaration recognising the Award. The Court made it clear that it recognised the Award as binding, for the reason set out above, however ‘what is being refused is not recognition but a declaration, and that refusal is not because the award is not recognised but because the declaration is not justified’; and
  • there could be no judgment for the monetary sum of the Award, as the Respondents had paid the Award in full.

The Court also granted the Suppression Orders.

The Court considered the distinction between enforcing and recognising an award

The Court clarified that whilst an order of the Court is required to enforce an award, an order of the Court is not required to recognise it, noting that:

  • by operation of Article 35(1) of the UNCITRAL Model Law, an award is recognised as binding between the parties from the date of the award. Accordingly, it follows that it is not necessary for a court to make any order for an award to be recognised; whereas
  • enforcement of an award occurs by a competent court only ‘upon application in writing to [it]’.

The Court held that it will not enforce an award where there are no longer any rights or obligations to enforce

The Court held that the Award gave rise to a cause of action independent from the rights and obligations of the parties in the dispute that was submitted jointly by them to the arbitrator for determination, being that the respondents pay a certain sum of money to the Applicants by a certain specified time. As the Respondents had satisfied the terms of the Award, the Court held that it ‘is a complete defence to the cause of action and hence to the enforcement of the award’. Accordingly, the Court held that it would be pointless to enter judgment against the Respondents as there are no longer any rights or obligations to enforce.

The Court granted the Suppression Orders

The Court held that the Suppression Orders were necessary to prevent prejudice to the proper administration of justice, having regard to the fact that:

• the Award had been paid in full and thus, there was nothing to enforce; and

• the Application was made on the same day that the Award was made, which strongly suggests that the Application was brought ‘not for any substantial legitimate purpose’, was ‘in bad faith’ and could only be explained as a ‘strategy to lift the veil of confidentiality from the arbitral proceeding’.

The Court also rejected the Applicants' argument that they did not need to wait for a default of the Award to occur before commencing the process of recognition and enforcement of the Award, which, if successful, will ultimately enable the Applicants to utilise the execution processes of the Court. The Court held that, where the award is, by its own terms, not yet due and payable and there is no suggestion that it will not be observed or recognised by the award debtor as authentic, valid and effective, then there is no substantial legitimate purpose in applying to a court for recognition or enforcement before default on the terms of the award.

Conclusion

This decision illustrates Australia's position as an 'arbitration friendly' jurisdiction and provides assurance to parties engaging in private arbitration that Australian Courts will uphold the parties' obligations, both contractual and pursuant to the legislative framework which underpins the practice of domestic and international arbitration in Australia.[1]


[1] [Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.]