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18 July, 2017
One of the most commonly cited benefits of arbitration over litigation as a form of dispute resolution is confidentiality. Generally speaking, this means that neither party to the arbitration is entitled to publicise details of the case, witnesses are examined in private, and documents disclosed or generated in the course of the arbitration should under no circumstances find their way into the public domain. The parties are therefore free to argue their dispute in confidence and without fear of adverse publicity and the potential for reputational damage that can sometimes flow from fiercely contested litigation on sensitive issues in Court, which is a public arena. However, in fact confidentiality in arbitration is not always a “given” and there are some critical exceptions to the rule.
The legal basis of confidentiality in arbitration
Before turning to the interesting and recent English Commercial Court decision of Teekay Tankers Ltd v STX [2017] EWHC 253, we revisit the general position and legal basis for confidentiality obligations in arbitration. Under English law, parties have an implied duty to keep matters related to an arbitration confidential. Despite the acceptance of confidentiality as a characteristic of arbitration, this widely-held notion does not actually have statutory support. Neither the Arbitration Act 1996 nor any other legislation contains any provisions pertaining to confidentiality in the arbitration context. English case law makes a distinction between two types of information. The first is ‘inherently confidential’ information (such as trade secrets) which assumes a quality of confidentiality notwithstanding the arbitration proceeding. The second type of confidentiality in arbitration covers documents produced for, generated in or disclosed in the course of an arbitration. These are not by nature confidential but are cloaked with an implied duty of confidentiality and can only be used by the parties for the purposes of the arbitration in which they were generated, produced or disclosed. It is with respect to the latter type of confidentiality certain exceptions can arise.
Recognised English law exceptions to confidentiality in arbitration include the following:
- Consent of the parties, be that express or implied.
- Order of the Court. This covers the situation where disclosure is necessary for the fair disposal of the case.
- Where disclosure is reasonably necessary to protect a party’s legitimate interests. This could include, for example, disclosure to defend another claim, or to bring a claim for indemnity.
- Where the ‘interests of justice’ requires disclosure . We examine this exception in further detail below in the context of the Teekay Tankers decision. Generally speaking, it could be used in situations including where wrongdoing was being cloaked in confidentiality, and where inconsistent arguments were being run in different forums.
How does the English position compare with Asia? In Hong Kong there is an express statutory duty of confidentiality contained in section 18 of the Arbitration Ordinance (Cap 609). Hong Kong is one of the few jurisdictions to have taken this step. There are exceptions to the obligations set out in the legislation, which include disclosures to legal advisers, disclosures required by law, and dislcosures to protect or pursue a party’s legal rights or enforce or challenge and award in legal proceedings before a Court outside of Hong Kong. In Hong Kong, section 16 of the Arbitration Ordinance provides that Court proceedings relating to arbitration are to be held in closed Court. By contrast, in Singapore confidentiality in arbitration is an implied obligation, with exceptions comprised in a body of case law. In the PRC, the matter is generally left to the administering institution (via its rules) or for the parties to agree as between themselves (that is, a matter of contract). Article 40 of the Arbitration Law of the PRC states that a tribunal may not hear a case in open session unless otherwise agreed.
Provisions of institutional rules providing for confidentiality will, generally speaking, override national law. LCIA Rules and SIAC Rules, for instance, strongly protect confidentiality.
By contrast, a set institutional rules cannot remove an obligation of confidentiality that is imposed by national law.
Although ‘confidentiality forum shopping’ is not something we often come across, it is nonetheless important that users of arbitration services understand the differences that exist and the consequences that may flow from a particular choice of jurisdiction or administering institution.
Teekay Tankers and the “interests of justice” Exception
In Teekay Tankers, various disputes between the defendant (STX) and subsidiaries of the claimant (Teekay) had previously been referred to arbitration. In proceedings before the English Commercial Court, Teekay made reference to the arbitration awards and the arbitrators’ reasons. STX counterclaimed for breach of confidentiality. The Court, the court held that the counterclaim failed, as the disclosure fell within the “interests of justice” exception. It reasoned that the disclosures made by Teekay were made in support of an arguable assertion, put forward in good faith so that what transpired in the arbitrations could be relied upon for the purpose of Teekay’s assertions in the English proceedings. Additionally, the court asserted that STX was given sufficient warning prior to the disclosure to enable it to take any necessary steps to preserve confidentiality. The reasoning behind the court’s holding on this point is rather unsatisfying, however, and brings to question whether this particular exception is really a sufficient justification to do away with one of the most salient features of arbitration. While the court in Teekay Tankers did not provide extensive reasoning on this point, we can turn to earlier case law for a better understanding of the court’s rationale.
The interests of justice exception was referred to by Mance J in London & Leeds Estates Ltd v Paribas Ltd (No.2) [1995] 2 E.G. 134 which involved an application for a subpoena to obtain certain expert witness proofs used in previous arbitrations. The witness proofs were sought in order to demonstrate the prior inconsistent views expressed by the expert in the arbitrations. On the question of whether the subpoena should be upheld, the court held that if it could be shown that a witness had expressed himself in a materially different way on a prior occasion, then this is a factor that should be revealed as it goes to the interests of the individual litigants and the public interest. It was on this basis that the subpoena for the production of the expert witness proofs was upheld.
Westwood Shipping Lines Inc v Universal Schiffahrtsgesellschaft MBH [2012] EWHC 3837 is another case which provides some colour to the discussion. Here, the court held that the interests of justice required disclosure where the claimant had made out an arguable case of unlawful conduct. Given that the claimant needed to rely to a considerable extent on the details of a previous arbitration, it was decided that in such circumstances it would not be appropriate for the court to stifle the claimant’s ability to bring to light the wrongdoing of one of the parties.
Perhaps the case that goes the furthest in explaining the exception is Ali Shipping Corp v Shipyard Trogir [1998] 2 All E.R. 136 where Potter LJ stated that the “interests of justice” exception is primarily concerned with ensuring that the judicial decision in a particular case is based on accurate evidence rather than a focus on a broader, global public interest. If a more accurate assessment of the case can be achieved by the disclosure of confidential information, then the confidentiality of arbitral proceedings should not be an impediment.
The Teekay Tankers is a reminder to those participating in arbitration proceeding that confidentiality in arbitration is not absolute, and certainly not under English law. The current state of the law permits reference to and reliance on arbitral awards in subsequent Court litigation where necessary. Further, such reliance may, in the right circumstances, provide justification for disclosure of otherwise confidential documents. Moving forward, litigants must carefully consider what they are disclosing not only in Court proceedings, but also in arbitral proceeding – on the basis that there must always be a theoretical risk that the ‘interests of justice’ should compel disclosure of those documents. Paradoxically, this goes against the very rationale for implying the obligation of confidentiality in arbitration proceedings in the first place.
For further information, please contact:
Malcolm Kemp, Partner, Stephenson Harwood
malcolm.kemp@shlegal.com
