23 April 2004
Key Points:
Arbitration used to be considered confidential, but case-law suggests confidentiality is at best limited. Since parties can no longer rely on an implied term of confidentiality (in Australia or elsewhere), they need to draft specific confidentiality provisions in their arbitration agreements.
Since an arbitration is private, it is often assumed that it is also confidential. Confidentiality is an attractive aspect of arbitration, and conventional wisdom holds that Australia is out of step with the rest of the world in not recognising the existence of an implied term of confidentiality binding the parties to an arbitration.
The conventional wisdom is incorrect. We will see that even courts which recognise an implied term will not hold it to be binding absolutely and are in disagreement as to the scope of that implied obligation. As a result, the scope of an implied obligation of confidentiality is yet to be clearly resolved, and parties are best advised to make their expectations of confidentiality clear in the arbitration agreement. They should be aware, however, that even an express clause might not be binding if it is too broad, as we will see below.
Private does not mean confidential: The Esso case
Although one of arbitration’s advantages is its privacy, that does not translate into confidentiality, according to the leading authority in Australia. In Esso Australia Resources v Plowman (1995) 183 CLR 10, Australia’s High Court held that, without an express term in the arbitration contract, there was no obligation to not reveal the content of the proceedings (this is to be distinguished from the protection of documents made available during arbitration upon discovery – these are covered by an implied undertaking not to disclose).
Chief Justice Mason’s leading decision pointed out that complete confidentia-lity is not only very difficult in practice (how, for example, would witnesses be bound?) but would defeat other legitimate interests. These include, for example, the need to disclose risks to an insurer, or the need to disclose details of the proceedings as part of judicial review of the arbitration.
An implied obligation?
It would be tempting to distinguish the Australian position as an extreme one, with no support from overseas cases. Closer examination of those cases, however, reveals that overseas cases are not uniformly finding an implied obligation of confidentiality, and when they do, they are approaching it in different ways.
For example, in the case of Bulgarian Foreign Trade Bank v AI Trade Finance Inc (Stockholm Arbitration Report 2000, No 2, 137), the Swedish Supreme Court reviewed both domestic and international law and found that there was no settled view as to whether there was any implied obligation. The court could find no good reason to infer an obligation when the written arbitration contract and statute were both silent.
English cases form the main body of law used to support the finding of an implied obligation, and neatly illustrate the confusion. The conventional view, as expressed in cases such as Hassneh Insurance Co of Israel v Mew [1993] 2 Lloyd’s Rep 243, is that there is a term of confidentiality in arbitration contracts that is usually implied as a matter of business efficacy. Confidentiality attaches to the award and documents produced during the arbitration, but that confidentiality can be dislodged where disclosure is reasonably necessary for the protection of the legitimate interests of an arbitrating party (disclosing the award to enforce it would fall within reasonable necessity, but disclosure for commercial advantage alone would not). A similar though not identical view has recently been accepted by Singapore’s High Court in Myanma Yaung Chi OO Co Ltd v Win Win Nu [2003] SGHC 124.
Compare this to the position in Ali Shipping Corporation v Shipyard Trogir [1998] 2 All ER 136: Potter LJ rejected the implication of the term as based business efficiency, as that requires an inquiry into the manner in which the arbitration contract was entered into. Instead he propounded the view that such a term is implied broadly as a matter of law. To that broad confidentiality he noted certain exceptions, including where disclosure is reasonably necessary for the protection of the legitimate interests of an arbitrating party.
Parties seeking to preserve full confidentiality might find that view encouraging, but it is not certain that this view will hold, following the Privy Council decision in Associated Electric & Gas Insurance Services Ltd v European Reinsurance Company of Zurich [2003] UKPC 11 (the AEGIS case) last year which involved an express confidentiality clause.
Although the Privy Council did not need to inquire into implied obligations, it did question the Ali Shipping approach of describing a broad confidentiality with limited exceptions. The Privy Council pointed out that there are different types of documents involved in an arbitration with differing levels of confidentiality attached to them, and that awards by their nature cannot be held confidential generally. It did not overturn Ali Shipping as such, but at the very least the doctrine of confidentiality it laid down is now unclear.
The pitfalls of an express provision
In light of these cases, it is clear that an implied obligation of confidentiality is too vague to rely upon if, at the very least, parties wish to preserve the confidentiality of documents produced during proceedings Express obligations in the arbitration contract are generally preferable, but contain their own problems.
For example, the parties in the AEGIS case made a lengthy confidentiality agreement to maintain the privacy and confidentiality of the arbitration, which included one clause preventing the parties from revealing the award to any third party. Exceptions were then made in the agreement, but none covered disclosure of the award to arbitrators in another arbitration.
The parties had previously been in arbitration, and an award had been made. If AEGIS were right, the confidentiality agreement prevented the result of the first award from being disclosed to the second arbitration panel, meaning the other party – European Re – could not rely upon the determinations in the first award. The Privy Council said that this could not be right, as it defeated the purpose of arbitration, which is to resolve disputes between parties.
What’s the future of confidentiality?
The law in relation to confidentiality of arbitration is in a state of flux. Even the bastion of implied obligations, the United Kingdom, may have started to pull away from broad confidentiality and back to a more detailed examination of the nature of the documents for which confidentiality is claimed. It is an irony that as time passes, the Australian decision in Esso starts to look more like simply another attempt to delineate the scope and limits of confidentiality.
Perhaps the best way to preserve the confidentiality of proceedings is to draft a realistic clause in the arbitration agreement which acknowledges each party’s legitimate interests in future disclosure of the award and possibly the transcripts, and their legitimate interests in preserving the confidentiality of documents obtained via discovery.
For further information, please contact Frank Bannon.
