When enforcement cannot undermine the confidentiality of arbitration

By Jeremy Quan-Sing, William Ho, William Stone

Confidential dispute to stay confidential, rules Federal Court

In late 2021, the Federal Court of Australia dismissed an application seeking to enforce and recognise an international arbitral award (already paid in full and within time), agreeing it was an improper 'strategy to lift the veil of confidentiality from the arbitral proceeding'.

The decision highlights the court’s pro-arbitration stance and the value it places on respecting confidentiality arrangements agreed between parties in private arbitration.

Key takeaways 

  • Dispute resolution terms are to be respected. As the court acknowledged, the efficacy of private arbitration relies on parties being able to conduct proceedings confidentially and within the terms of their dispute resolution agreement. Unnecessarily airing details of the dispute in public erodes this effectiveness.
  • Anyone participating in arbitration in Australia can be comforted that the veil of confidentiality will not easily be lifted.
  • While bringing an enforcement application to aid compliance is understandable, the court stated that there is no legitimate purpose in applying to a court for recognition or enforcement before default on the terms of the award. In any event, once an award debtor has complied with its obligations, the award creditor should seriously consider discontinuing any application that has been commenced.

The lead-up to court

The dispute involved parties to an international multi-level marketing scheme led by the applicants (the award creditors). In the parties’ agreement, a clause required that any disputes be settled by 'confidential arbitration administered by the Australian Centre for International Commercial Arbitration (ACICA)'.

  • Following a collapse in relations, arbitration began on 14 May 2020. After various procedural steps, the parties settled their dispute at mediation on 21 April 2021. The parties' confidential deed of settlement recorded the parties' agreement to the arbitrator ordering the respondents pay a specified amount to the applicants within 30 days of the award date.
  • The award was made on 5 May 2021 (the Award). That same day, the applicants filed an originating application seeking orders, in reliance on Article 35 of the UNCITRAL Model Law (the Model Law) (as adopted by the International Arbitration Act 1974 (Cth)), that the court enforce the arbitral award.
  • On 21 May 2021, the respondents filed an interlocutory application seeking suppression and non-publication orders of the dispute and the identity of those involved. On 22 May 2021, the respondents paid the full amount owing.

Dispute before the court

At the hearing, the applicants argued Article 35 of the Model Law uses the mandatory phrase that an arbitral award 'shall be recognized as binding and, upon application in writing to the competent court, shall be enforced', subject to the limited exceptions under Article 36.

The applicants contended there was no express ground under Article 36 that allowed a court to refuse the Award’s recognition and enforcement on the basis the Award had been paid.

The respondents submitted that to recognise or enforce the Award would be contrary to sub-Article 36(1)(b)(ii) of the Model Law, as it went against the public policy exception, in circumstances where the Award was satisfied and paid on time. The respondents also argued the application was an abuse of process in its attempt to publicise the dispute and its terms of settlement.

The Federal Court's decision

Justice Stewart rejected the applicants' arguments, clarifying that:

  • there is a distinction between the 'recognition' and 'enforcement' of an arbitral award. The Award obtains recognition by force of the Model Law on the parties to the arbitration agreement for all purposes, on and from the date the arbitral award is made. In contrast, enforcement only occurs by a competent court upon written application;
  • notwithstanding the application’s dismissal, the award remains recognised. What was refused was not recognition (which occurs under the Model Law) but a declaration from the court also recognising the award as binding. The refusal was not because the Award was not recognised but because the declaration was not justified.

His Honour concluded that, where an award ordered payment, and that sum had been paid on time, the court had no basis to enforce the award by entering judgment. In doing so, the court:

  • dismissed the applicants' submission that, by failing to make orders recognising the award, substantial doubt would be placed on the award’s validity or finality;
  • rejected the applicants' submission it was established international arbitral practice to bring enforcement proceedings in public courts before award payments were due; and
  • said there was no need for a court order to 'recognise' the award, given there was no relevant controversy about the award's validity, and that the award was recognisable on its own.