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Article for “TDM”
TITLE
Confidentiality Rules OK ? Recent Developments affecting the Confidentiality of Arbitrations
AUTHOR
Hew R. Dundas
Chartered Arbitrator DipICArb CEDR-Accredited Mediator
International Arbitrator, Mediator and Expert Determiner
Member - Panel of Chartered Arbitrators of the Chartered Institute of Arbitrators
Member - Regional Panel of Arbitrators of the Singapore International Arbitration Centre
Member - Panel of Arbitrators of the Regional Centre for Arbitration, Kuala Lumpur
Arbitrator of the International Arbitration Court of the Republic of Kazakhstan
Member - London Court of International Arbitration
(also Dundas Energy Services, International Petroleum Law & Risk Management Advisers)
website: www.dundasarbitrator.com
SUMMARY
Arbitration offers major advantages over litigation, including wider and more effective enforceability, the option to select a tribunal with relevant expertise in the subject matter of the dispute and, in most jurisdictions, the confidentiality attaching to the arbitral proceedings and to the documents created for it.
Two recent significant decisions in the English courts have refined the law relating to confidentiality; this article reports on these decisions and places them in the context of international developments relating to confidentiality in arbitration.
1. Introduction[1]
One of the major factors leading parties to choose arbitration over litigation for the resolution of disputes is that, in most jurisdictions, the detailed proceedings and documents relating thereto are confidential; this is of particular importance in the oil and gas industry which has traditionally resolved its problems behind closed doors, outwith the public eye. For 120+ years until the 1990s there was a belief in the English sphere that arbitral proceedings were both private and confidential and the English judiciary, in a line of cases starting with Dolling-Baker v Merrett[2] confirmed the existence of a confidentiality obligation arising out of the very nature of arbitration.
Conversely, in 1995 the High Court of Australia, by a 3-2 majority, held in Esso v Plowman[3] that there was no inherent confidentiality (as distinct from privacy) of arbitral proceedings in Australia; this decision has been exhaustively analysed and commented upon[4] but the English position was reconfirmed by the Court of Appeal in Ali Shipping in 1998[5]. However, in 2000 the Swedish Supreme Court decided in the BulBank case[6]. that there was no inherent confidentiality obligation in arbitration in Swedish law
In recent months, two significant cases have been heard in England, the Moscow case in the High Court, and the AEGIS case[7] in the Judicial Committee of the Privy Council. Moscow refutes, so far as English law is concerned, one of the main arguments against an inherent confidentiality obligation to the effect that enforcement or challenge proceedings in Court necessitate revealing details of the arbitration, particularly the award. The facts in AEGIS are fairly close to those of Dolling-Baker and Ali Shipping in that separate arbitrations arose on essentially common facts and the question arose as to the use of material from one arbitration in the other.
Although the two cases are English and Bermudan, the principles upon which they were decided are of wide general application, whether in respect of Art. 6 ECHR or, perhaps more directly relevant to the international oil and gas industry, because of the wide commonality emerging in the way that international commercial arbitration addresses key issues such as confidentiality.
This article addresses only commercial arbitration, investment arbitrations (BIT, ICSID, NAFTA etc) giving rise to different considerations eg where the project in dispute is the construction or operation of a water supply to a city in a developing country, a powerful public interest factor arises.
2. The AEGIS Case
2.1 The Facts
AEGIS, a Bermudan insurance company, had had a reinsurance agreement with European Re since 1980. Two separate disputes regarding European Re’s obligations were referred to arbitration before different tribunals, the first issuing an interim award (the ‘First Award’) which, by definitively interpreting the provisions of the reinsurance agreement proved decisive of that dispute. In the second arbitration, European Re sought to rely upon the First Award but AEGIS, seeking an injunction to prevent such reliance, contended that European Re could not do so since such would breach the confidentiality applicable to the first arbitration and First Award. European Re then argued that the same dispute had recurred in the second arbitration spo that the injunction sought by AEGIS would have blocked European Re from referring, in the second arbitration, to the First Award and thereby raising a plea of issue estoppel.
AEGIS relied on the general principle of privacy in arbitration proceedings as in Dolling-Baker v Merrett, and argued, inter alia, that to disclose the First Award or any part of it to the second tribunal would involve a twofold breach of confidentiality, (i) as a general principle and (ii) in respect of the terms of an express and comprehensive confidentiality agreement made during the first arbitration, inter alia, prohibited the disclosure of the award “… to any individual … not a party to the [first] arbitration …”.
2.2 Decision – The Confidentiality Agreement
It was fundamental that a tribunal could declare what the rights and obligations of the parties were and bind the parties by that declaration, enforcement however lying with the Courts. Common law remedies were available besides statutory ones: it was possible either (a) to sue on the award or (b) to sue for damages for failing to honour the award or (c) to rely upon the award as having conferred a right or determined a fact. It was an implied term of an arbitration agreement that the parties had agreed to perform the award.
Bermudan law[8] empowered the Court to hear arbitration proceedings privately and to restrict any reporting thereof[9]. Confidentiality obligations did not prevent one party from relying upon an award as having given it rights against the other since, otherwise the winner could not enforce it whether as a declaration of its rights or as a monetary award, which would be fundamentally inconsistent with, and would frustrate, the purpose of the arbitration; AEGIS accepted this but argued that reliance upon an issue estoppel was not enforcement of the award and that showing it to the second tribunal was not the same as showing it to a court in legal proceedings.
Assume that the plea of issue estoppel was prima facie sound: the First Award had therefore decided the correct construction of the reinsurance agreement and had established what the rights of the parties were were thereunder. It followed that, in the second arbitration AEGIS, was seeking to dispute those rights, contrary to the First Award. European Re could enforce that award only by pleading issue estoppel which “applies to arbitration as it does to litigation. The parties … are bound by the determination by [the] tribunal of any issue which is relevant to the decision of any dispute which is referred to that tribunal.”[10] European Re’s case in the second arbitration was that the decision of the first tribunal was not only relevant to, but was also decisive of, determination of the second dispute so that an issue estoppel arose upon which it should be able to rely; for AEGIS to raise the same dispute in the second arbitration would amount to a failure to recognise and perform the First Award and therefore did not infringe the confidentiality obligation.
2.3 Judicial Committee Comment on Ali Shipping[11]
Extensive reference was made in argument to the judgment of Potter LJ in Ali Shipping; in consequence it was desirable to state why the Committee had not referred to that case in the main part of its judgment. In brief, AEGIS had involved the construction of a specific and very detailed confidentiality agreement and whether the later use of the First Award to support the argument for issue estoppel fell within the broad ambit of enforcement. Consequently, generalised argument concerning privacy and confidentiality in arbitration was of less relevance. The present case resembled Ali Shipping in respect of supporting a plea of issue estoppel but, critically, differed in that the parties in the two AEGIS arbitrations were the same
However Potter LJ had set out to characterise a duty of confidentiality as an implied term and then to formulate exceptions to which it would be subject. The Committee had reservations about the desirability or merit of adopting this approach which both (a) ran the risk of failing to distinguish between different types of confidentiality which attach to different types of document or to documents which had been obtained in different ways and (b) elided privacy and confidentiality which are not the same. Commercial arbitrations were private proceedings and did not place anything in the public domain: this might mean that the implied restrictions on the use of material obtained in arbitration proceedings might have a greater impact than in litigation. However, the same logic could not be applied to an award. An award might have to be referred to for accounting purposes or for the purpose of legal proceedings (as in the present proceedings) or for the purposes of enforcing the rights which the award conferred (as European Re had sought to do in the second arbitration); however, generalisations and detailed formulation of implied terms were inappropriate. In any event, Ali Shipping provided no assistance for AEGIS’ arguments and the Court of Appeal in that case had been considering neither what rights an award gave rise to nor any question of what was involved in the enforcement thereof.
Athough AEGIS was heard under Bermudan Law, the nature and content of the judgement, taken together with the very strong Judicial Committee sitting in this case, means that it can substantially be taken as a statement of English law.
3. The Moscow Case
3.1 Introduction
The confidentiality of arbitral proceedings is often asserted as lost if either party initiates court proceedings e.g. under ss.67/68/69 but Moscow shows that this is not necessarily so and that it is still possible for the relevant Court proceedings to be held in private and the details and the outcome held confidential.
An arbitration had been held before a sole arbitrator in respect of a financing by the City of Moscow through BT and IIB and separate s.68 applications had been made by the Banks. On 19th March 2003, Cooke J had handed down judgment, intended as confidential but inadvertently leaked into the public domain, dismissing these applications; that judgment led to secondary proceedings and a second judgment, dated 5th June, addressed, inter alia, issues of privacy and confidentiality relating to the original arbitration and to the March judgment.
The hearing of the s.68 applications had taken place in private[12] since no application had been made for them to be heard in public. On handing-down, Moscow had then wished to make the judgment public, whilst the Banks demanded privacy, maintaining that, consequent on the underlying privacy and confidentiality policies inherent in arbitration, not only had the challenge to the award rightly been heard in private but the March judgment, like the award, should not be published. Conversely, Moscow maintained that any order of the Court was a public document and, subject to certain exceptions, the Court had no power to impose permanent secrecy on the judgment.
3.2 The Civil Procedure Rules (CPR) regime and Underlying Policy Considerations
In English court proceedings, the general rule[13] is that a hearing is to be public although it may be in private for certain reasons[14], including whether publicity would defeat the objects of the hearing, or if the hearing involved confidential information and publicity would damage that confidentiality or if the Court considered privacy to be necessary in the interests of justice. However, CPR Part 62 provides a different regime for arbitration applications[15], Instead, CPR 62.10(1) provides that “The court may order that an arbitration claim be heard either in public or in private” and CPR 62.10(3) provides that “Subject to any order made under [62.10(1)]: (a) the determination of [either](i) a preliminary point of law under [s.45], or (ii) an appeal under [s.69] on a question of law arising out of an award will be heard in public, and (b) all other arbitration claims will be heard in private.” [emphasis added]. No list of criteria governing any exceptions to Rule 62.10.3(b) is given whereas CPR 39PD1.5 set out ten types of non-arbitration proceedings which should be heard in private. Where CPR 39.2 or 62.10 addressed ‘private hearings’, it did so as a matter of policy.
What was policy ? There was an important distinction between situations where the Court sat in private merely as a matter of administrative convenience and those where it did so in the exceptional circumstances where the nature of the application was sufficiently sensitive that there should be restrictions not only on attendance but also on publication where such would defeat the purpose of the hearing. The fundamental principle was that "It remain[ed] a principle of the greatest importance that unless there [were] compelling reasons for doing otherwise which [would] not exist in the generality of cases, there should be public access to hearings in chambers and information available as to what occurred at such hearings."[16] The proper administration of justice required that not only should it be done but that it should be seen to be done and therefore judgments should be open to public scrutiny. This longstanding policy was bolstered by Art. 6 ECHR which stated that: "Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in [certain specified circumstances]."
Since there was no provision in the Act regarding publication, the issue turned on CPR 62.10.
3.3 The Meaning and Effect of CPR 62.10 on Private Hearings
Although at common law and under Art 6 ECHR judgments became public documents, since CPR 62.10 set out no criteria regarding the public/private decision there were a number of obvious factors which a Court would take into account including, inter alia, the nature of the application being made and the issues being raised and the attitude of the parties towards publication and the essential nature of arbitration involving privacy and confidentiality[17]. What the Court had to consider was what was necessary in the interests of justice, having regard to the nature of the material to be presented and its sensitivity so far as the parties were concerned, both in relation to the hearing itself and in relation to any judgment to be given at the end of that hearing.
The Banks’ s.68 applications were inherently sensitive in suggesting unfairness by the arbitrator. Further, the arbitration had raised highly sensitive political and commercial issues, inevitably referred to in the March judgment. At the outset of the arbitration Moscow had sought a specific order from the arbitrator confirming the confidentiality of the arbitration, and it had never suggested in the arbitration either that the confidentiality of the proceedings had been lost, or that it should be lifted.
Cooke J saw the parties’ desire for privacy or confidentiality as being a compelling reason for their choice of arbitration and this was supported by the underlying policy: the arbitration agreement’s desire for confidentiality should generally be respected in the context of Court proceedings arising out of the award. The parties had agreed to arbitrate under UNCITRAL Rules which provided, inter alia, that "The award may be made public only with the consent of both parties"[18]. The hearing in private of an arbitration application reflected fundamental policy in respect of arbitrations: any publicity would negate the fundamental principle that an arbitration agreement was, inter alia, an agreement for the private resolution of the dispute. Prima facie publication would appear to be contrary to justice and to the public interest in allowing the parties the freedom to resolve their disputes as they would wish.
3.4 Privacy of Judgments
Cooke J dismissed the argument that Art. 6 ECHR required judgment to be pronounced publicly since it permitted "... secrecy to the extent strictly necessary in the opinion of the Court in special circumstances where publicity would prejudice the interests of justice"[19]: confidentiality was a matter to which the Court would have considerable regard. In any event, jurisprudence[20] confirmed that CPR 39.2 did not itself violate Art. 6 and the same logically applied to CPR 62.10. CPR 39.2’s presumption of open justice and publication of judgments was not directly applicable to arbitration applications but the latter issue fell to be determined on equivalent criteria with, perhaps, a presumption in favour of privacy given in the rule itself. The reason for this was the strength of the requirement of confidentiality or privacy in arbitration[21]; in addition Sir Patrick Neill QC had stated[22]: “it would be difficult to conceive of any greater threat to the success of English arbitration than the removal of the general principles of confidentiality and privacy."
Further, the Act[23] stressed the freedom of the parties to resolve disputes in the agreed manner, where privacy was, in the present case, expressly provided for in the UNCITRAL Rules. CPR 62.10 sought to support the privacy of arbitration to an extent compatible with the interests of justice. The need to examine the nature of the proceedings was clear from the authorities and the policy which gave rise to private hearings might also apply to any judgment given. Until the judgment was known, neither the Court nor the parties would fully appreciate the extent to which there were issues of public importance, and the extent to which there might be sensitive matters raised within the judgment which should not be published. The privacy of the proceedings neither created nor destroyed the confidentiality of matters aired in the course thereof, and the mere fact of such privacy provided no basis upon which to object to publication.
Where the material was of a highly sensitive nature both politically and commercially (as here) the fact that all of the hearing involved confidential information was a dominant factor. The arbitration itself and everything raised in relation to it was confidential and if publicity would damage that confidentiality, then the Court could rightly consider privacy of both hearing and judgment to be necessary in the interests of justice. Each application, hearing and judgment would require examination by the Court to ascertain whether or not privacy or publicity was appropriate.
The parties, in agreeing to seat their arbitration in England, had implicitly agreed to application of CPR 62 to any arbitration application and had implicitly recognised the appropriate criteria applicable in the Court’s determination of whether or not confidentiality should continue to apply. All relevant factors suggested non-publication of the March judgment insofar as it concerned the substance of the award and the arbitration process, such privacy being required in the interests of justice and where publicity would prejudice such interest.
3.5 Forfeiture of the Right to Privacy
Cooke J rejected Moscow’s argument that the Banks had forfeited any right to privacy or confidentiality by making certain disclosures to third parties. Letters written by BT prior to the commencement of arbitration were irrelevant and subsequent letters had disclosed no details of the substance of the arbitration proceedings. In any event, in October 2001 Moscow had referred (as it had to) to the existence of the dispute in an offering circular relating to a substantial Euromarket borrowing but nothing done by the Banks had constituted a breach of any confidentiality obligation. Disclosure to investors of the result but not the substance of the arbitration had been necessary, analogous to disclosure to shareholders in a company if an arbitration had a material impact upon its accounts; there could be no breach of duty in disclosing the fact of commencement of arbitration, the existence of an arbitration or the result of that arbitration where there was any legitimate reason to do so; equally, there would be no breach by disclosure of the existence of any challenge to an award, the existence of consequent litigation and the result of that litigation.
3.6 Conclusion
Cooke J concluded that his March judgment should remain private. The result of the present applications, as enshrined in any order, could of course be published without reference to the content of the judgment. Finally, for completeness he observed that the present (i.e. June) judgment raised both matters of law and matters of wider interest, and contained no confidential information save for the existence of the dispute, the existence of the award and the existence of the March judgment, all of which information was already in the public domain. There was therefore no good reason for withholding publication of the present judgment, subject to any further submissions that the parties might wish to make.
4. Comment/Concluding Remarks
Both the AEGIS and the Moscow decisions are, I submit, entirely correct not only as a matter of English law but as a matter of general principle: it is fundamental to commercial arbitration that it is a private dispute resolution process and it would be completely anomalous if enforcement of an award required disclosure of it to the world at large.
However, cases such as AEGIS will be rare whereas circumstances such as in Dolling-Baker or Ali Shipping will inevitably recur e.g. in insurance, commodities and maritime circumstances but also in the oil and gas industry where (eg) two non-operators might commence separate arbitral proceedings against the operator on the same set of facts or where there might be one arbitration between the joint venturers and the host State oil and gas company and a second arbitration between the non-operators and the operator.
This article is not the place to debate the opposing positions taken in English and Australian/Swedish law but, I submit, Sir Patrick Neill's demolition of the Australian judgement and the anomalous circumstances surrounding the Swedish one at least call into question the extent to which those decisions would be persuasive in other jurisdictions.
One particular part of the factual matrix in the Australian case was the expert evidence led to the effect that details of arbitrations in Victoria were reasonably public as a matter of general course; whether such leakage into the public domain was from arbitrators, the parties or the parties' advisers was never fully explored. It is evident that there is similar leakage in all the major arbitral cities and such is greatly to be deplored; the internet has undoubtedly and regrettably played a role in the wider dissemination of material which should properly have remained confidential. The argument is often put that arbitration awards should be public, even if only in anonymised form, for the benefit of the arbitral community (including the parties) as a whole; in my view, this argument is self contradictory since arbitration is not precedent-driven.
There is a strong case that arbitrations under ICSID[24] and NAFTA have a public interest element (eg if the project giving rise to the dispute is a public water supply project in a developing country) so that some involvement of the public is indeed merited; I have considerable sympathy with this argument but this is a substantial debate addressed in detail elsewere.
Finally, it is my belief that the Moscow decision in the English High Court sends the appropriate signal to the international oil and gas industry that, if parties genuinely want to resolve their disputes in private they can do so and the English Court will support them in that regard; however, given the guidance of the Judicial Committee, it is clear that the English courts will not accept artificial barriers placed by losers in the path of winners endeavouring to enforce their rights. Although there are many factors which oil and gas companies should consider in deciding whether to arbitrate or litigate, confidentiality is, in my view, one of the most important.
[1] Abbreviations: references in this article in the form s.00 are to section 00 of the [English] Arbitration Act 1996 (the “Act”) unless otherwise specified; ECHR – European Convention on Human Rights; ECtHR – European Court of Human Rights
[2] [1990] 1 WLR 1205.
[3] Esso Australia Resources Ltd & Ors v Plowman (Minister for Energy) & Ors (1995) 128 ALR 321.
[4] eg in the 1995 Bernstein Lecture by Sir Patrick Neill QC (as he then was) reprinted in (1996) 62 Arbitration 3 at p.1; he also gave an erudite and comprehensive historical survey dating back to the 17th century.
[5] Ali Shipping v Shipyard Trogir; [1999] 1 WLR 314.
[6] A.I. Trade Finance v Bulgarian Trade Bank; Supreme Court case 1881-99; judgment delivered 27th October 2000.
[7] Associated Electric and Gas Insurance Services Ltd v. European Reinsurance Company of Zurich; Privy Council Appeal #93/2001; 29th January 2003; refer [2003] 69 ARBITRATION 3; the parties hereinafter ‘AEGIS’ and ‘European Re’
[8] The relevant provision for an international arbitration was the UNCITRAL Model Law on International Commercial Arbitrations of 1985 per the International Conciliation and Arbitration Act 1993 (“ICAA”), s.23 and Sch. 2.
[9] This is similar in principle to the effect of CPR Part 62.10 – refer below.
[10] Diplock LJ in Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630, 643; see also Lord Denning MR at p.640.
[11] Without this postscript, the decision might have been seen as unremarkable, turning on its own very precise facts and offering no general guidance, the circumstance of two arbitrations between the same parties (which were not the circumstances in any of the previous cases) on the same issue being novel, possibly unique.
[12] Pursuant to CPR Rule 62.10(3).
[13] CPR 39.2.
[14] CPR 39.2(3).
[15] Application of Rule 39.2 is excluded by CPR 62.10(2).
[16] Hodgson v Imperial Tobacco Ltd [1998] 1 WLR 1056 per Lord Woolf at p.1071, reflecting a longstanding line of authority.
[17] CPR 39.2(3).
[18] Art. 32(5).
[19] Explored in detail in the ECtHR in B v United Kingdom 34 EHRR 19.
[20] Pelling [2001] UK HRR165
[21] e.g. refer DAC report §11-12
[22] In his Bernstein Lecture – refer fn 4 above.
[23] s.1
[24] ICSID’s website (www.worldbank.org/icsid) publishes key details of proceedings including interlocutory matters and interim and final awards.
