Behind the privacy screen: the assumption of confidentiality in arbitration proceedings

The perceived advantages of confidentiality and privacy are a key driver behind the decision to choose ?arbitration over court proceedings. Parties who arbitrate in England expect that the hearing will be in private, and that the conduct of the arbitral proceedings – including documents disclosed in and generated for the purposes of arbitration – will attract the same protection.

But confidentiality in arbitration can raise some difficult practical issues regarding the extent to which documents, evidence or awards can be disclosed to third parties or used in any subsequent or collateral litigation.

The Arbitration Act 1996 deliberately did not address confidentiality. The Departmental Advisory Committee report on Arbitration Law noted that the task of setting out the scope of the obligations and any exceptions to those obligations was difficult and controversial, and was best suited to evolution and articulation through the common law.

Implied obligation

And evolve it has. In general terms, English law appears to recognise, subject to certain exceptions, an implied obligation on parties not to disclose documents created, prepared or used in arbitration, such that the parties to arbitration (and the tribunal) are under implied duties to maintain the confidentiality of the hearing, documents generated and disclosed in the proceedings and the award. While the legal basis of the obligation of confidentiality is controversial, the manner in which the implied obligation has developed in jurisprudence is relatively clear. It is perhaps best articulated in Parker LJ’s judgment in Dolling-Baker v Merrett [1990] 1 WLR 1205 (CA) as follows:

“It must be perfectly apparent that, for example, the fact that a document is used in an arbitration does not confer on it any confidentiality or privilege which can be availed of in subsequent proceedings. If it is a relevant document, its relevance remains. But that the obligation exists in some form appears to me to be abundantly apparent. It is not a question of immunity or public interest. It is a question of an implied obligation arising out of the nature of arbitration itself. When a question arises as to production of documents or indeed discovery by list or affidavit, the court must, it appears to me, have regard to the existence of the implied obligation, whatever its precise limits may be. If it is satisfied that despite the implied ob-ligation, disclosure and inspection is necessary for the fair disposal of the action, that consideration must prevail. But in reaching a conclusion, the court should consider, amongst other things, whether there are other and possibly less costly ways of obtaining the information which is sought which do not involve any breach of the implied undertaking.”

Some of the arbitration rules in the major centres deal expressly with confidentiality of material generated in arbitration and thus appear to be influenced by the English case law as it has developed.

For example, article 30(1) of the London Court of International Arbitration (LCIA) Rules provides that “Unless the parties expressly agree in writing to the contrary, the parties undertake as a general principle to keep confidential all awards in their arbitration, together with all materials in the proceedings created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain - save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority.”

The scope and nature of the implied obligation has been considered recently in the Outer House of the Court of Session ?in Scotland.

On 18 May 2012, Lord Hodge said in Gray Construction Limited v Harley Haddow LLP [2012] CSOH 92 that the decision to refer a case to arbitration implied an obligation of confidentiality. In his opinion, Lord Hodge stated as follows:

“Counsel agreed that, while there had not been any judicial rulings in Scots law on the right to privacy and the obligation of confidentiality in arbitration proceedings, they were prepared to proceed … on the basis that confidentiality extended to all documents produced or created by or on behalf of the parties in connection with the arbitration proceedings. The jurisprudential basis of the obligation of confidentiality in English law is that it is an implied obligation arising out of the nature of arbitration … absent express contractual provisions, I see no difficulty in implying such an obligation in a contract to refer a dispute for determination by means of arbitration.”

‘Necessary incident’

The implied duty of confidentiality was analysed by the Court of Appeal in Ali Shipping Corporation v Shipyard Trogir [1997] EWCA Civ 3054, which remains the leading English case on the doctrine of confidentiality of arbitration proceedings.

The case involved an application for an injunction restraining the defendant from disclosing certain arbitral documents from an earlier arbitration, specifically the award, the opening submissions and the transcripts of evidence, for use in subsequent arbitration proceedings.

In his judgment in Ali Shipping, Lord Justice Potter held that the term of confidentiality was implied by the law ?“as a necessary incident of a definable category of contractual relationship” (namely the arbitration agreement), again subject to exceptions.

However, that analysis has attracted some adverse (obiter) comment. In the case of Associated Electric & Gas Insurance Services Ltd v European Reinsurance Company of Zurich (Bermuda) [2003] UKPC 11, the Privy Council criticised the implied obligation on the basis that an implied term was insufficiently flexible to accommodate the different obligations which might attach to different documents.

Such criticism was taken further by Lord Justice Lawrence Collins in the Court of Appeal in Emmott v Michael Wilson & Partners Ltd [2008] EWCA Civ 184. “The implied agreement is really a rule of substantive law masquerading as an implied term”, he said.

Notwithstanding the criticism which the development of the implied obligation has generated, unless and until the Supreme Court determines the issue, the implied obligation, arising as a necessary incident of a contractual relationship between the parties as articulated in Ali Shipping, remains generally accepted as a matter of English law.

Broad exceptions

As referenced in article 30(1) of the LCIA rules and in Parker LJ’s judgment in Dolling-Baker, the obligation of confidentiality is subject to broad exceptions.

While the precise scope of the exceptions is a matter of developing law, the ruling in Ali Shipping expressly noted four broad exceptions currently recognised by English law, namely:

- Where the disclosure is made by express or implied consent of a party, or where the parties agree to dispense with or modify the obligations of confidentiality by agreement or consent: 

There is no barrier to parties to arbitration agreeing to exclude obligations of confidentiality; conversely, and as is more common, the parties might seek to limit the obligations of confidentiality. Any such agreement can be recorded in the terms of any ad-hoc arbitration agreement or in agreeing to arbitrate pursuant to the rules of one of the arbitration institutions (such as the LCIA or LMAA) which seek to articulate in express terms the agreed scope and limits of the duty of confidentiality as between the parties.

- Where disclosure is under compulsion of law, pursuant to a court order or other court permission:

As stated by Parker LJ in Dolling-Baker, it is axiomatic that “the fact that a document is used in an arbitration does not confer on it any confidentiality or privilege which can be availed of in subsequent proceedings. If it is a relevant document, its relevance remains.”

How, then, is the conflict between a relevant document which a party to litigation seeks disclosure and the fact that that same document is subject to the implied duty of confidentiality resolved? This point was addressed in both the Dolling-Baker case and in Science Research Council v Nasse [1980] AC 1028. Ultimately, much will turn on the individual facts and circumstances, however, the court will need to assess and take into account the duty of confidentiality of the documents in exercising its discretion to compel disclosure of documents which would otherwise be subject to the duty. The court must balance whether, in the exercise of its discretion, disclosure is necessary for the fair disposal of the case.

- Where disclosure is necessary in the interests of justice or in the public interest:

This point was considered in both the Emmott and Dolling-Baker cases. In Emmott, the court permitted disclosure of documents produced in a London arbitration to the courts in certain other jurisdictions to avoid the possibility of misleading the other courts. This confirmed that the duty of confidentiality owed by the parties to an arbitration could be waived in circumstances where public interest dictates that it should be waived, or to do so is in the legitimate interests of one of the parties.

- Where disclosure is necessary for the establishment or protection of a party’s legal rights:

This exception most commonly relates to the requirement to protect an arbitrating party’s legal rights vis-à-vis a third party. For example, Potter LJ in Ali Shipping noted that English law recognises this exception in circumstances where it is “reasonably necessary for the protection of legitimate interests of an arbitrating party vis-à-vis a third party in order to found a cause of action against that third party or to defend a claim or counterclaim brought by the third party.”

 

The perceived advantages of arbitration over litigation in terms of the privacy and confidentiality remains, but parties and practitioners must not lose sight of the fact that the implied obligation of confidentiality is not a panacea. The exceptions to the implied obligation as currently recognised in English law mean that parties should not proceed to arbitrate in England solely on the misguided belief that the dispute and the documents generated in the arbitration are protected from subsequent disclosure for good.

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