Confidentiality of Arbitrations - the Reality

It has been suggested that recent case-law is eroding one the principal reasons favouring arbitration as a method of dispute resolution – that they are private and confidential. This article analyses these new authorities and considers whether the arbitral walls of confidentiality are being dismantled by the civil courts or whether these decisions are simply clarifying the existing and recognised exemptions to the general rule.

There are many reasons why parties choose to arbitrate matters rather than pursue litigation through the judicial system. Historically, one of the most compelling reasons is that arbitration proceedings are effectively private, conducted behind closed doors and out of the public and media gaze. Furthermore, documents which are prepared for the purpose of arbitration (and copied to the arbitrators and the other party), and the final awards themselves, are protected by a duty of confidentiality.

Although the rules of the Supreme Court (CPR 62.10(3)(b)) expressly recognise that all arbitration claims will be heard in private except in a few exceptional circumstances, the Arbitration Act 1996 is silent on the issues of both privacy and confidentiality. As such, the boundaries of the general rules governing these aspects of this increasingly popular form of dispute resolution have essentially been left to be developed through the common law. A clear example is the case of Ali Shipping Corp v Shipyard Trogir [1998] 2 All ER 136 which is often cited as the basis for the view that confidentiality arises through an implied term in the arbitration agreement, a view shared by a number of commentators.

Whilst the precise extent of privacy and confidentiality in arbitration remain a source of debate, few would argue against the suggestion that those key cornerstones of arbitration are impossible to circumvent.

Recent case-law, examples of which are considered in detail below, has addressed the ambit of privacy and confidentiality and the extent of the exceptions to these two concepts, and debate is rife among lawyers and academics as to whether the courts are simply providing clarification or whether there has been a more serious erosion of what was undoubtedly seen by many parties as one of the principal benefits of arbitration as a form of dispute resolution.

Wilson v Emmott

Michael Wilson & Partners Ltd v John Forster Emmott1 concerned the confidentiality of documents used in relation to a London arbitration where related judicial proceedings were taking place simultaneously in foreign jurisdictions.

The case concerned a dispute between Mr Wilson and Mr Emmott in relation to an agreement under which Mr Emmott would join Mr Wilson’s company and which contained an arbitration clause providing for arbitration in England under English law. Whilst the arbitration proceedings were on-going, court proceedings were initiated in New South Wales and the British Virgin Islands against other respondents connected with the alleged wrongdoings in Mr Wilson's company (but not against Mr Emmott). Allegations of fraud and conspiracy were made against Mr Emmott in both foreign jurisdictions but these claims were discontinued in the London arbitration.  

Mr Emmott applied through the Commercial Court in London for the amended Points of Claim in the arbitration to be disclosed and used in the New South Wales and British Virgin Islands proceedings on the basis that there was a risk that those foreign courts would otherwise be misled.

The Court confirmed that past cases have recognised a series of exceptions to the general rule that documents attract confidentiality in arbitration in the following circumstances: (i) with the consent of the other party; (ii) by order or permission of the court (iii); where it is reasonably necessary to protect the legitimate interests of an arbitrating party; and/or (iv) in the interests of justice/public interest. With this in mind, the Court decided that disclosure in the circumstances was in the interests of justice and reasonably necessary to enable Mr Emmott to protect his legitimate rights, and caused no prejudice to the company involved.

This decision was confirmed on appeal. In the Court of Appeal Judgment, Collins LJ recognised that "the overwhelming majority of arbitrations in England are conducted in private and with complete confidentiality" and confirmed that “the principle of confidentiality is implied by law and arises out of the nature of arbitration". Notwithstanding this, he held that the interests of justice required disclosure in the circumstances and the interests of justice were not confined to those in England; the international dimension of the case demanded a broader view. Thomas LJ further confirmed that although the courts pay high regard to the obligations of privacy and confidentiality when considering whether to order disclosure, they are ultimately no more bound to give effect to the agreement of the parties than they are to give effect to obligations of privacy and confidentiality that arise by agreement between the party to litigation and a non-party in other contexts. He emphasised the need for a balancing exercise between on the one hand the privacy of an arbitration and, on the other, the public interest.

The decision sends a clear message that whilst the courts will endeavour to respect the parties' wishes for confidentiality, each decision will involve balancing the parties' right to confidentiality against the greater good. In considering the Wilson v Emmott decision, one must question whether it would be right for parties to use the confidential nature of the proceedings as a ‘veil', enabling them indirectly to mislead foreign courts. The answer to this question must clearly be no and the interests of justice, itself a fundamental concept in the English courts, demand that confidentiality as between arbitrating parties should not be absolute. The decision should be commended for adopting an approach that recognises the importance of confidentiality and is sympathetic to the wishes of arbitrating parties, but at the same upholds fundamental concepts of justice entrenched in the English judicial system.

Mobil Cerro v Petroleus de Venezuela

Mobil Cerro Negro Ltd v Petroleos de Venezuela SA2 was a case in which the Court addressed the extent of confidentiality in judicial proceedings relating to a pending arbitration.

The Defendant was the national oil company of Venezuela who applied to set aside a worldwide freezing injunction which had been obtained by the Claimant (Mobil). The freezing injunction had been granted pursuant to section 44 of the Arbitration Act in support of an intended ICC arbitration in New York, in which Mobil sought to enforce a contractual claim under a guarantee given by one of the Defendant's subsidiary companies. In his Judgment, Walker J referred to CPR 62.10 and decided that as the order granting the freezing injunction had received considerable publicity, the hearing should be in public and he would issue a long and detailed public judgment, save for those aspects of the matter which were confidential.

This appears to be a pragmatic approach and was not a revolutionary break from the norm, simply clarifying and adding force to the position taken in preceding cases, and in particular City of Moscow v Bankers Trust3. In that case the Court of Appeal held that it was in the public interest that the Court’s reasoning in response to arbitration applications should be made public and it now seems fairly clear that the outcome of judgments on arbitration claims in the Civil Courts will, in the vast majority of cases, be published. The rationale is also clear - applications, unlike arbitral proceedings, are not consensual and there is also a broad public interest in making sure arbitration jurisprudence develops in the public domain. Moreover, although this approach imposes on the courts an obligation to frame such judgments in a manner which allows them to be published without disclosing confidential information, in the main that task should not be problematic especially as there would often be very little need to disclose as much information as was disclosed in the arbitration itself. However, for those opposed to the ‘alleged' erosion of privacy and confidentiality, this decision acts as a reminder that parties need to be mindful that information disclosed in arbitrations may subsequently be legitimately disclosed and used for other purposes.

Comment

Parties should no longer assume, if they once did, that any exchange of information taking place behind private walls in arbitral proceedings will remain immune from wider dissemination. The courts have recognised a number of situations in which the need to maintain privacy and confidentiality will be outweighed by more pressing issues and as it is arguable that clarification of the scope of these exceptions is not yet complete, this list may not be exhaustive.

In this respect, lawyers should, from the outset, ensure that their clients are aware that arbitration is neither wholly private nor wholly confidential. The inclusion of specific privacy and confidentiality provisions in an arbitration agreement is an option which may give some comfort to a concerned client. However, any such provision should not be relied upon as a means of providing absolute protection; express provisions in a contract will not alter the fundamental approach of the Court but may prove persuasive in borderline cases.

However, this debate must be seen in context. Privacy and confidentiality remain fundamental to arbitral proceedings and have been and will continue to be the most significant distinguishing features between arbitration and other forms of dispute resolution. This point has been reaffirmed in recent case law and particularly the two cases analysed above. Therefore, rather than seeing these authorities as eroding the concepts of privacy and confidentiality, it is instead submitted that they simply provide clarification and the exceptions are both consistent in approach and restricted in nature. Most importantly, the courts have indicated that they are fully conscious of the commercial (and other) benefits of maintaining privacy and confidentiality for parties in arbitration and will continue to approach these issues with caution to ensure that the exceptions do not become the norm.

Contacts

The information in this newsletter is for general guidance only and is not intended to be a substitute for specific legal advice. If you would like any further information please contact:


Kevin Perry
Partner, Commercial Litigation - London
t: +44 (0) 20 7556 4454
e: KPerry@eapdlaw.com


Charlotte Bunn
Associate - London
t: +44 (0) 20 7557 4569
e: CBunn@eapdlaw.com


Vikki Courtney
Trainee - London
t: +44 (0) 20 7556 4123
e: VCourtney@eapdlaw.com