13 August, 2019
One of the attractive features of arbitration has always been that it is a private method of settling disputes, as opposed to court litigation where hearings are made in open court and judgments are published for all to see. To this end, the Malaysian Arbitration Act 2005 (“Arbitration Act”) was recently amended in 2018 to include Section 41A to prohibit disclosure of information relating to arbitral proceedings and awards unless agreed by the parties.
In the recent case of Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd [2019] MLJU 405, the High Court had to consider the novel of issue of whether the confidentiality obligations in Section 41A apply to non-parties to an arbitration / third parties.
Background Facts
- The Plaintiff, Dato’ Seri Timor Shah Rafiq, is a director of the Defendant, Nautilus Tug & Towage Sdn Bhd (“Nautilus”).
- The Plaintiff applied to the Court for leave to initiate proceedings on behalf of Nautilus against one of the shareholders of the Nautilus, based on the tort of negligence (“Plaintiff’s Application”)
- Nautilus objected to the use of two documents annexed in the Plaintiff’s Application (“Documents”).
- Nautilus argued that the Documents were prepared for the purposes of an arbitration which the Defendant was involved in.
- Nautilus argued that since it was a party to the arbitration and did not consent to the disclosure of the Documents, the Plaintiff should not be allowed to use the Documents. Nautilus sought for the Documents to be expunged from the proceedings.
- Nautilus referred to the prohibition in Section 41A and the common law position that “the principle of privacy [in arbitration] precludes third parties from making use of documents generated in arbitration proceedings outside the arbitration without the consent of the party producing it or the leave of court…”
Court’s Findings
The Court dismissed Nautilus’ application to expunge the Documents on the following grounds:
- Section 41A of the Arbitration Act does not apply to non-parties to an arbitration. Since the Plaintiff was not a party to the arbitration, he is not bound by Section 41A.
- In any event, Section 41A(2) allows parties to publish, disclose or communicate information relating to the arbitration within certain circumstances (e.g: to protect or pursue a legal right or interest of that party) without leave or consent. The Court held that it would be a strange result if parties to an arbitration who are subject to the prohibition under Section 41A may enjoy its exceptions under Section 41A(2), but third parties not privy to the arbitration (and thus not caught by section 41A) may not and are to remain prohibited by either Section 41A or the common law provision, without benefit of any exception.
- The statutory prohibition in Section 41A supersedes the common law principles of confidentiality attached to any arbitration. There would be no point for Section 41A if the common law principles were intended to continue to apply.
- The common law principle is founded on an implied (if not otherwise expressed) obligation between the parties to an arbitration. On this basis, it cannot be said to extend to non-parties to an arbitration.
Takeaways
On 1 July 2019, the Federal Court had in a related case (Jaya Sudhir a/l Jayaram v Nautical Supreme Sdn Bhd & 2 Ors, Federal Court Civil Appeal No. 02(i)-83-09/2018(W) held that the rights and prohibitions in the Arbitration Act do not apply to non-parties to the arbitration agreement and/or arbitration proceedings. This High Court decision, although decided before the Federal Court case, is consistent with that interpretation.
However, the High Court’s decision here arguably dilutes one of the most important features of arbitration – confidentiality and privacy. This decision suggests that when confidential documents used in arbitration end up in the hands of non-parties (even through no fault of any party in the arbitration), there is limited recourse to prevent those confidential documents from being disclosed.
As a safeguard, parties to an arbitration should ensure that the issue of confidentiality is dealt with at the outset, for example in the terms of reference of the arbitration. Different arbitral institutions and seats of arbitration may have different methods of dealing with confidentiality in arbitration. For example, the ICC Rules allow the arbitral tribunal to make orders concerning confidentiality of arbitration proceedings and may take measures for protecting trade secrets and confidential information. While these orders would still not bind non-parties, they may be helpful in regulating parties’ conduct in ensuring the arbitration documents do not get into the hands of third parties in the first place.
In practice, access to confidential information should be properly regulated and only disclosed on a need to know basis. Parties to an arbitration should ensure recipients agree to the necessary confidentiality undertakings to at least allow an avenue of action against those recipients should they breach those undertakings.
Due to the High Court’s decision, once a non-party receives the information, there may be little that can be done.
In this case, while it is not apparent how the Plaintiff (not being a party to arbitration) obtained the Documents, it could be presumed that he had access to this as a director of the Defendant.
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho
donovan@dnh.com.my
