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Confidentiality in Arbitration – boon or bane?

Author: M.Jagannath
Date: May 31, 2017

One of the advantages of Arbitration is that it is confidential in nature and that parties can arbitrate their disputes without this being available in the public eye (which is not available under the court system). Is this really a benefit? This article considers issues arising out of this “implied confidentiality” and argues that it is best for parties to expressly decide as to whether they wish this confidentiality to be retained.

  1. One of the accepted principles of arbitration is that there is generally an implied duty of confidentiality between the parties (if it is not explicitly provided in legislation or in the arbitration agreement). The English Court of Appeal in Ali Shipping Corp v Shipyard Trogir [1998] held that the term of confidentiality was implied by the law (as an essential corollary of the privacy of arbitration proceedings). The Court also recognised limited exceptions to the broad rule of confidentiality and which included disclosure by one of the parties for the protection of their legitimate interests1.

  1. Most of the Shipping / Maritime Contracts provide for Arbitration to resolve disputes ( Clause 54 of the NYPE 2015, Clause 19 of the Gencon 1994, etc). Given the duty of confidentiality (either implied by law or explicitly provided in the arbitration agreement / Rules incorporated into the agreement), issues would arise when a party seeks to pursue (or defend ) a third party relying on either the documents submitted during the arbitration by the other party and / or the award.  Pursuit of the third party may well come within the limited exceptions to confidentiality as was recognised in Ali Shipping Corp (reasonably necessary for the protection of the legitimate interests of an arbitrating party against a third party either to found or defend a claim or counterclaim). However, should the other party object to the release of the information and documents provided during the arbitration, it may be necessary to seek an order of the relevant Court allowing for use of the material received during the arbitration.

  1. If the contract with the third party has a similar arbitration clause, some arbitration rules provide for consolidation2 of the arbitration proceedings (Rule 16 b of the LMAA Terms 2017, Rule 33.2 of the SCMA Rules 2015). Consolidation would lead to saving of costs for all parties. However, if the arbitration clauses are not similar, 3rd parties may not agree and instead prefer to arbitrate / litigate as provided in their contract. This would obviously mean that the proceedings for recovery would not be simultaneous but sequential leading to delays and which may impact recovery (for instance due to the downside contract having limited time for pursuit of claims). It is therefore submitted that in these circumstances, confidentiality may be a barrier in pursuing the third party who may be at fault.

  1. Most of the countries3 have incorporated the UNCITRAL Model Law on International Commercial Arbitration (1985) and its subsequent amendments (as adopted in 2006) in their domestic legislation. The salient feature of the Model Law is that there is no right of appeal on a point of law. However, Article 34 allows an application for setting aside as the only recourse against the arbitral award. UK, on the other hand, has chosen not to follow the Model Law. S69 of the English Arbitration Act allows a party to make an appeal on a point of law but with leave of the court4. The advantage of the English Arbitration Act is that the appeal process allows for meritous cases to be considered by the Courts leading to the development of law.

    Sir Bernard Rix, during his keynote address at the 2017 Annual SCMA Conference -  Making Maritime Arbitration Work for You, argued forcefully that arbitration may not be beneficial in the development of law, particularly, when there is no right to appeal on a point of law as is the case in Singapore and other Model Law Jurisdictions. He therefore suggested that the explicit rule of Confidentiality in the SCMA Rules (Rule 44) be done with so as to allow for the awards to be published after a suitable delay. This would then allow development of the law in that the arbitral awards would act as a basis for future decisions.

    Although not discussed during Sir Bernard Rix’s address, it is submitted that publishing of awards would lead to additional scrutiny on the awards (at least for ad-hoc arbitrations) and which would lead to renewed confidence in the arbitral process6

  1. As the implied / explicit duty of confidentiality would have a bearing on any eventual recovery, it is submitted that it should not be given that this duty is imposed automatically. Instead, it should be negotiated in as much as any clause in the contract is negotiated. Accordingly, parties must review their Dispute Resolution Clause to ascertain if it is “fit for purpose” and consider whether they would wish to agree to the implied/explicit duty of confidentiality. If a party feels that their best interests would be served by excluding the “duty of confidentiality”, then they must negotiate for this duty to be struck off say by agreeing “there is no implied / explicit duty of confidentiality…”.

  2. Conclusion:

    1. The duty of Confidentiality (either implied or by contractual incorporation), while useful in certain circumstances, may deter recovery against third parties. If required, parties should consider negotiating the exclusion of this duty.

    2. Publishing of Arbitral Awards would not only lead to the development of arbitral law but also lead to greater scrutiny on the arbitral process and awards thus creating greater confidence in arbitration.

 

1 The Singapore High Court in Myanma Yaung Chi Oo Co Ltd v Win Win Nu [2003] followed the English decision whereas the Australian High Court in Esso Australia Resources Ltd v Plowman [1995] ruled that there was no duty of confidentiality. 

2 Consolidation is a procedural mechanism allowing for two or more claims to be united into one single procedure concerning all related parties and disputes.

3 As per the UNCITRAL website, 75 of the 106 countries have adopted the Model Law.

4 The trend of the English Courts in the recent years has been to restrict such applications.

5 Some arbitral institutions publish redacted awards after a sufficient gap.

6 In addition, it would aid in countering any arguments against arbitrators impartiality, particularly on party appointed arbitrators,  presently being debated on various foras.

Some arbitral institutions publish redacted awards after a sufficient gap.

 

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