EBJ21 v EBO21

Case [2021] FCA 1406

FEDERAL COURT OF AUSTRALIA

EBJ21 v EBO21 [2021] FCA 1406  

File number(s): NSD 403 of 2021
Judgment of: STEWART J
Date of judgment: 12 November 2021
Catchwords:

ARBITRATION – international arbitration – recognition of an award under the UNCITRAL Model Law – where the pecuniary obligations in the award have been paid – where there is no dispute about the validity or efficacy of the award – whether Art 35 of the Model Law requires orders recognising the award when no Art 36 ground is established – whether declaration recognising the award is justified or required – whether money judgment on the award would be enforcement of the award – whether money judgment on an award that has been paid is available

ARBITRATION – international arbitration – obligations of confidentiality with respect to arbitration proceedings – where confidentiality protected by contractual provisions and the International Arbitration Act 1974 (Cth) – whether disclosure of confidential information by bringing proceeding for recognition of an award is within contractual and statutory exceptions to confidentiality

PRACTICE AND PROCEDURE – application for suppression orders of all confidential information in relation to arbitral proceedings – whether suppression orders are necessary to prevent prejudice to the proper administration of justice if there is no legitimate purpose for recognition orders
Legislation:

Civil Law and Justice (Omnibus Amendments) Act 2015 (Cth)

Federal Court of Australia Act 1976 (Cth) ss 23, 37AE, 37AF, 37AG 37AI, 37AJ

International Arbitration Act 1974 (Cth) ss 3, 8, 15, 16, 18, 22, 23B, 23C, 23D, 23E, 23F, 23G, 35, Sch 1, 2

Federal Court Rules 2011 (Cth) r 2.32

ACICA Arbitration Rules 2016 rr 22.2, 38.2, 40(e)

Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (entered into force 14 October 1966) (ICSID Convention)

Convention on the Recognition and Enforcement of Foreign Arbitral Awards opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959) (New York Convention) Arts 54, 56

UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006) Arts 1, 20, 30, 31, 35, 36
Cases cited:

Ainsworth v Criminal Justice Commission [1992] HCA 10; 175 CLR 564

Clarence City Council v Commonwealth of Australia [2020] FCAFC 134; 280 FCR 265

Esso Australia Resources Ltd v Plowman [1995] HCA 19; 183 CLR 10

Hogan v Australian Crime Commission [2010] HCA 21; 240 CLR 651

Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110; 153 ACSR 84

InfraRed Environmental Infrastructure GP Ltd v Spain, No ARB/14/12, Decision on the Continuation of the Stay of Enforcement of the Award (ICSID 2019)

Kingdom of Spain v Infrastructure Services Luxembourg Sàrl [2021] FCAFC 3; 387 ALR 22

Kingdom of Spain v Infrastructure Services Luxembourg Sàrl (No 3) [2021] FCAFC 112; 392 ALR 443

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AGLC
EBJ21 v EBO21 [2021] FCA 1406
Case
[2021] FCA 1406
Decision Date

CaseChat Overview and Summary

In the case of EBJ21 v EBO21, the applicants sought recognition of an international arbitral award under the UNCITRAL Model Law, arguing that their right to recognition could only be defeated by one of the limited grounds outlined in Art 36, none of which included the prior payment of the award. The respondents opposed the application on the basis that the applicants' proceeding for recognition was an abuse of process or contrary to public policy, as well as seeking suppression orders to prevent disclosure of confidential information relating to the arbitration. The central legal issues were whether Art 35 of the Model Law mandated orders recognising an award when no Art 36 ground is established, whether a declaration recognising the award was justified or required, and whether a money judgment on an award that has been paid would be enforcement of the award. The court held that Art 35 of the Model Law does not require a court to make any order for an award to be recognised; recognition by force of law is automatic and sufficient. A declaration recognising an award may be appropriate in certain circumstances, but is not required. A money judgment on an award that has been paid would not be enforcement of the award. As for the suppression orders, the court found that they were not necessary to prevent prejudice to the proper administration of justice given the strong private interest in maintaining confidentiality of the arbitration proceedings. The court dismissed the application for recognition of the award and made orders for confidentiality and costs.

The orders included dismissing the originating process, assigning pseudonyms to the parties, declaring documents confidential for five years, reserving costs, and setting a schedule for costs and confidentiality submissions. The case highlights the distinction between recognition and enforcement of arbitral awards under the Model Law and the limited circumstances in which suppression orders may be granted to prevent disclosure of confidential arbitration information.

Orders

Orders of the court

1. The originating process filed on 5 May 2021 be dismissed.

2. For a period of five years, or until further order:

(a) the parties be assigned the following pseudonyms:

(i) the first and second applicants, EBJ21 and EBN21 respectively;

(ii) the first and second respondents, EBO21 and EBP21 respectively, and

(b) all documents on the court file for this proceeding be confidential in the sense contemplated by r 2.32 of the Federal Court Rules 2011 (Cth).

3. Costs be reserved.

4. Within seven days of these orders, the respondents file and serve submissions of no more than five pages (of at least 12 point font and 1.5 line spacing) on costs and on the period of time for which Order 2 above should operate.

5. Within seven days of service on them of the submissions referred to in Order 4, the applicants file and serve short submissions in response and subject to the same limitations.

6. Within three days of service on them of the submissions referred to in Order 5, the respondents file and serve any short submissions in reply of no more than two pages and otherwise subject to the same limitations.

7. Unless any party requests an oral hearing and the Court so orders, the issues raised by the submissions referred to in Orders 4 to 6 above be decided on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The award creditors, the applicants, say that Art 35(1) of the UNICTRAL Model Law on International Commercial Arbitration, by providing that an arbitral award “shall be recognised” and “shall be enforced”, gives them a right to recognition or enforcement that can only be defeated on one of the limited grounds set out in Art 36 of which prior payment of the award is not one. They say that that right means that their proceeding seeking recognition cannot be an abuse of process or contrary to public policy.Background The applicants are associated network marketing companies, one of which is incorporated in a foreign country and the other in Australia. The applicants develop, manufacture and distribute certain products which they promote to customers through a network of “Associates”. The respondents were enrolled with the applicants as “Independent Associates” in 2013 pursuant to an agreement between them. The agreement included an “Arbitration and Governing Law” provision which, relevantly, has the following features: ·Any controversy or claim arising out of or relating to the agreement “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”;·“Judgment on any award rendered by the arbitrator(s) may be entered in any court having jurisdiction”. On 24 January 2020, the respondents terminated the agreement with the applicants. On the same day, solicitors for the applicants wrote to the respondents noting that various confidentiality and non-solicitation and restraint obligations remained between them. The respondents had apparently shifted allegiance and were working with a competing multi-level marketing company (the competitor). The letter went on to allege, among other things, that the respondents had made false statements about the applicants’ products to multiple “Independent Associates”, were in breach of their contractual obligations and were liable for the tort of contractual interference. On 12 February 2020, solicitors for the competitor replied to the applicants’ letter requesting further details and particulars. However, the applicants did not reply, and instead commenced a proceeding against the respondents and the competitor in a superior court in a foreign country. The originating process in that proceeding was not served on the respondents, and never has been, but it was published and maintained on the applicants’ website and in that way the applicants published the dispute to the world at large. The originating process is detailed and emotive in its allegations against the respondents. The respondents say that the foreign proceeding “lapsed” after 12 months for failure to prosecute the claim.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The parties to the arbitral proceeding that is the subject of this case, as mentioned, agreed a range of confidentiality provisions reinforcing the protections offered by the IAA. To reiterate:(1)The arbitration agreement requires that neither the arbitrator nor the parties disclose information about the arbitration other than with the prior written consent of both parties.(2)The ACICA rules governing the arbitration require that neither the arbitrator nor the parties disclose information relating to the arbitration to third parties other than for particular purposes including “for the purpose of making an application to the courts of any State to enforce the award”.(3)The settlement agreement provides that its terms are strictly confidential and are not to be disclosed in any way other than in limited circumstances including “for the purpose of enforcing” the agreement.Summary conclusion on confidentiality All of the above shows that there is a strong public and, in this case, private interest in maintaining the confidentiality of the arbitral proceeding, but there is a narrow exception that allows the disclosure of so much as may be necessary in a proceeding to enforce the award or is necessary for the purposes of the IAA or the Model Law. The contractual exceptions are even narrower, being limited to enforcement of the award and enforcement of the settlement deed.Suppression orders under the FCA Act Against the strong public and private interest in maintaining the confidentiality of the arbitral proceeding is a strong public interest in open justice in relation to court proceedings, it being a primary objective of the administration of justice to safeguard the public interest in open justice: FCA Act, s 37AE. Although the Court has the power under s 37AF of the FCA Act to make the suppression orders that the respondents seek, under s 37AG(1)(a) that power can in this case only be exercised if “the order is necessary to prevent prejudice to the proper administration of justice” (emphasis added). The principles in relation to the making of suppression or non-publication orders under s 37AF of the FCA Act are well settled. They were recently expressed as follows in The Country Care Group Pty Ltd v CDPP (No 2) [2020] FCAFC 44; 275 FCR 377 per Allsop CJ, Wigney and Abraham JJ:8Suppression or non-publication orders should only be made in exceptional circumstances: Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403 at [27]; Rinehart v Rinehart (2014) 320 ALR 195; [2014] FCA 1241 at [23]. That is both because the operative word in s 37AG(1)(a) is “necessary” and because the court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: Rinehart v Welker at [32]; Rinehart v Rinehart at [25]. The paramount consideration is the need to do justice; publication can only be avoided where necessity compels departure from the open justice principle: Rinehart v Welker at [30]; Rinehart v Rinehart at [26].9The critical question is whether the making of a suppression or non-publication order is “necessary to prevent prejudice to the proper administration of justice”. The word “necessary” in that context is a “strong word”: Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21 at [30]. It is nevertheless not to be given an unduly narrow construction: Fairfax Digital Australia and New Zealand Pty Ltd v Ibrahim (2012) 83 NSWLR 52; [2012] NSWCCA 125 at [8], citing Hodgson JA in R v Kwok (2005) 64 NSWLR 335; [2005] NSWCCA 245 at [13]. The question whether an order is necessary will depend on the particular circumstances of the case. Once the court is satisfied that an order is necessary, it would be an error not to make it: Hogan at [33]. There is no exercise of discretion or balancing exercise involved: Australian Competition and Consumer Commission v Air New Zealand Limited (No 3) [2012] FCA 1430 at [21].

Ratio Decidendi

Legal Principle Established

The grounds for not recognising or enforcing an arbitral award set out in Art 36 of the Model Law mirror the grounds in s 8(5) of the IAA and Art V of the New York Convention: Hub Street at [16].ConsiderationThe distinction between recognition and enforcement It is explained in TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 (TCL HCA), at [19] per French CJ and Gageler J, that Art 35 of the Model Law was drafted to bring out a useful distinction between recognition and enforcement. It takes into account that recognition not only constitutes a necessary condition for enforcement but also may stand alone, for example where an award is relied on in other proceedings. Also, by operation of Art 35(1), an award is recognised as binding between the parties from the date of the award, whereas enforcement occurs by a competent court only “upon application in writing to [it]”. (See TCL HCA also at [30].) It is further explained in TCL HCA (at [23]) that s 8(1) of the IAA demonstrates that the requirement of Art 35 of the Model Law that an arbitral award “shall be recognised as binding” is appropriately and succinctly translated as part of the law of Australia to mean that an arbitral award is binding 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. The purposes for which an arbitral award is recognised as binding include reliance on the award in legal proceedings in ways that do not involve enforcement, such as founding a plea of former recovery or as giving rise to a res judicata or issue estoppel. Forms of orders It follows that it is not necessary for a court to make any order for an award to be recognised – it has recognition by force of law and a court can recognise it by, for example, upholding a defence of res judicata with reference to the award. In an appropriate case where the status or validity of an award is in dispute, a court might make a declaration recognising an award. But there is nothing in the Model Law or otherwise in the IAA that suggests that a court must make some order to fulfil its obligation under Art 35 of the Model Law to recognise an award. On the contrary, an order is required to enforce an award, but an order is not required to recognise it. An appropriate order, although not necessarily the only appropriate order, for the enforcement of an arbitral award, which would be made under s 23 of the FCA Act, would be an order that the arbitral award be enforced as if the arbitral award were a judgment or order of the Court: TCL HCA at [24]. However, in respect of an arbitral award sounding in money (i.e., a money award) an appropriate, and the usual, order to enforce the award would be simply to enter judgment for the sum concerned: Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd (No 2) [2011] FCA 206; 277 ALR 441 at [13] per Foster J; Traxys Europe SA v Balaji Coke Industry Pvt Ltd and Another (No 2) [2012] FCA 276; 201 FCR 535 at [71] per Foster J; Kingdom of Spain v Infrastructure Services Luxembourg Sàrl [2021] FCAFC 3; 387 ALR 22 (Spain No 1) at [58]-[61] per Perram J, Allsop CJ and Moshinsky J agreeing; Kingdom of Spain v Infrastructure Services Luxembourg Sàrl (No 3) [2021] FCAFC 112; 392 ALR 443 (Spain No 3) at [10] per Allsop CJ, Perram and Moshinsky JJ agreeing.