How confidential is Arbitration?

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One of the potential attractions of arbitration as a form of dispute resolution, as opposed to litigation, is that arbitrations are conducted in private. The documents created for the purposes of the arbitration (e.g. pleadings and witness evidence) are confidential. So too are the reasons given by the arbitrator for his or her decision. Everything takes place behind closed doors. Third parties are unable to obtain any details about the arbitration, unless the arbitrating parties agree.

In contrast, litigation is generally conducted in public. A hearing that is open to members of the public, and a reasoned judgment available to the world at large, are seen as bulwarks of both the civil and criminal justice systems. People have confidence in the administration of justice because they are able to see how the courts work, and therefore they are able to scrutinise the judicial process.

If then, crudely speaking, arbitrations are private matters, and litigation is public; how does the private / public dichotomy resolve itself when parties to an arbitration seek to challenge or enforce an arbitrator’s decision in court? The issue arises in cases of enforcement or challenge to an award, because the status of an arbitrator’s award is something that only the courts can determine. An award can only be enforced (or varied or set aside) through the courts. If, therefore, a judge gives a reasoned decision for enforcing, or refusing to enforce, an arbitrator’s award, there is a serious potential for the details of the arbitration to leak out, i.e. confidentiality in those matters may be lost.

The issue of confidentiality in arbitrations arose in the Court of Appeal’s decision in Department of Economic Policy and Development of the City of Moscow v Bankers Trust [2004] EWCA Civ 314 (25 March 2004).

The underlying dispute between the parties concerned funds that had been advanced by Banks to borrowers in Moscow. The Banks asserted that the Borrowers had defaulted, but the Borrowers disputed this. By agreement, the dispute went to arbitration. The arbitration was conducted pursuant to the UNCITRAL rules. There was a hearing before an arbitrator, followed by an award.

In his award, the arbitrator determined that there had not been a default by the Borrowers. The Borrowers won.

The Banks then sought to challenge the arbitrator’s award in the High Court. They were unsuccessful in doing so. The Borrowers won again.

Just after the High Court judgment was handed down, the issue was raised as to whether the judgment should be made public, or whether it should only be made available to the parties themselves to the exclusion of the public. The concern for the Banks was that the publication of the reasons for judgment would give away the details of the arbitration, which, the Bank said, should remain confidential. The Borrowers, however, wanted the judgment to be made public, so that they could demonstrate “to the international financial markets” that they had not defaulted.

The judge – Mr Justice Cooke – held that his reasons for judgment were to remain confidential to the parties. One of the reasons that the judge gave for keeping his reasons for judgment confidential was that it did not present a full picture of the underlying dispute that was arbitrated. Thus, even if his reasons were made available to the world at large, the Borrowers would not really be able to demonstrate “to the international financial markets” that they had won handsomely before the arbitrator, and then the High Court.

The Banks appealed this decision to the Court of Appeal. The Court of Appeal held that Cooke J was correct to order that his reasons for judgment be kept private. Thus, the judgment of Cooke J is to remain private, and therefore we shall never know the full details of what the dispute was about. Thus, the confidentiality of the facts and matters decided in the arbitration has largely been preserved.

Two principal matters were important to the Court of Appeal’s reasoning.

First, the Court emphasised the desirability of the administration of justice being transparent and open. If the subject matter of a private arbitration appears before a court, on appeal or enforcement, there is a legitimate interest in the decision of the judge being made public, even if it reveals details of the arbitrated dispute.

Secondly, however, the Court of Appeal’s decision indicates that open justice is not an absolute principle, and that the courts will use discretion in giving reasons in enforcement / challenge proceedings to ensure that privacy and confidentiality are preserved, to the extent appropriate. The courts are empowered to mould their decisions so that sensitive, confidential information is not revealed to all the world in a judgment. The fact that the parties have chosen to resolve their disputes by way of arbitration usually suggests that they wish to keep the factual substrate of their arbitrated disputes out of the public domain. In the case before the Court of Appeal, it was decided that the interest in keeping the arbitration confidential outweighed any perceived benefit in revealing to all the world the details of the arbitration.

The courts have considerable discretion in deciding how much information about an arbitration should be made available to the public. They will take into account a range of matters in determining what to reveal about an arbitration, including the potential prejudice to a party if the information were to be disclosed. Although arbitration proceedings are private and confidential, the extent to which they will be kept private and confidential is subject to the competing imperative of open and public justice in court. Hence, it should not be assumed that what goes on in an arbitration will never make it into the public domain.

For more information contact Julian Bailey on 020 7367 2057 or at [email protected]