Arbitral confidentiality and the right to protect legitimate interest

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

What happens if you are a law firm acting for party A in an arbitration and, as a result of actions undertaken by you in that capacity, party B to the arbitration brings an action against you in the High Court? Was party B entitled to do so? Do the proceedings themselves constitute a breach of the principle of confidentiality? Can you submit a defence without yourself breaching arbitral confidentiality? These questions have recently been addressed in the High Court decision in Sarah Lynette Webb v Lewis Silkin LLP [2015] EWHC 687 (Ch).

Background

Sarah Lynette Webb ("SLW") was an equity partner at a law firm (which is referred to in the judgment only as "S"). SLW and S were embroiled in arbitration proceedings and Lewis Silkin LLP was acting for S in those proceedings.

During the course of the arbitration, Lewis Silkin accessed SLW's work email account (the account she held at S) and viewed emails which SLW considered private and, in some instances, privileged. Lewis Silkin believed that it was entitled to view these emails as: (a) S had a protocol in place allowing it to access SLW's work account; and (b) it was under an obligation to review the emails for the purposes of disclosure, as the documents were relevant to the dispute and were in the possession and control of S. Lewis Silkin emphasised that it had run filters on the documents to exclude from the review exercise privileged emails and emails between SLW and her husband.

SLW argued that the disclosure rules sent out in the Civil Procedure Rules, which are applicable to litigation, were not applicable to the arbitration; that the protocol did not apply to her; and that Lewis Silkin had accordingly "breached [SLW's] confidentiality, misused [SLW's] private information and are in breach of the Data Protection Act". SLW thus brought an action against Lewis Silkin in the High Court. Lewis Silkin, in response, brought an application for a stay of the proceedings on the basis that their existence and content breached the rules on arbitral confidentiality. The stay was sought:

"until such time as the claimant has obtained a ruling from the Arbitrator to the effect that (a) the matters raised by the Amended Particulars of Claim and/or any Defence served by the Defendant will not amount to a breach of arbitral confidence and (b) the conduct and trial of these proceedings will not amount to a breach of arbitral confidence".

It was stated in Lewis Silkin's application that:

"The Defendant seeks an order in these terms because the Amended Particulars of Claim breach the confidence of the arbitration proceedings…and the Defendant is unable to defend the claim without breaching its own obligations of confidentiality to its client in the arbitration and in respect of arbitration proceedings generally, and because the Claimant ought, pursuant to s. 1 of the Arbitration Act 1996, to seek permission of the Arbitrator or, if the Arbitrator is unable to act, of the Court before making use of the information that is subject to a duty of confidentiality by virtue of the Arbitration Agreement".

Permission to depart from the confidentiality obligation

It is a fundamental principle of the arbitration process that proceedings are confidential, regardless of their subject matter. What is less clear is when diversion from this rule is permitted.

SLW claimed that she had implied permission to breach the confidentiality rules in order to protect her legitimate interests. Lewis Silkin argued (in Mrs Justice Proudman's words, rather than the words of their own counsel) that "it would drive a coach and horses… through the protection confidentiality lends to an arbitration if a party to it could simply bring proceedings in court whenever he liked" and that accordingly any departure from the confidentiality rules must only be made with the express permission of the arbitrator.

Reference was made to the case of Hassneh Insurance Co of Israel v Mew [1993] 2 Lloyds Rep 243,where the judge stated "I conclude... that if, as asserted, it is reasonably necessary for the establishment by the defendant of his causes of action… that he should disclose or in his pleadings quote from the arbitration award… he should be entitled to do so… without having to apply to the court for leave to do so" and to Emmott v Michael Wilson & Partners Ltd [2008] EWCA Civ 184, and Lawrence Collins LJ's summary therein that "the principal cases in which disclosure will be permissible are these: where there is consent…where there is an order or leave of the court… where it is reasonably necessary for the protection of the legitimate interests of an arbitrating party… where the interests of justice require disclosure and also (perhaps) where the public interest requires disclosure".

The court's findings

The court held that SLW was entitled to bring her claim without seeking the permission of either the arbitrator or the court.

The judge looked to existing case law on the matter and concluded that, as "it does seem that many cases have been brought without seeking leave of the court in advance", and as requiring the permission of the arbitrator before the matter could be brought would involve an application that was "so wide that it would be impossible for the arbitrator to say what the defence might be or what issues would arise at trial and therefore whether they would breach arbitral confidentiality", it was not appropriate to require SLW to obtain permission before bringing her case against Lewis Silkin.

Fundamentally, it was held that "where it is necessary to protect his, her or its interests, an arbitrating party, including for this purpose a person within the ring of confidentiality, can breach arbitral confidentiality". She emphasised that such person could do so without the permission of the court or an arbitrator and that where the defendant is concerned about what it may or may not do or say in response to such an action, the defendant may apply to the court seised of the matter for an order as to what it may and may not do.

Points made inobiter

In reaching her decision, Mrs Justice Proudman also considered the issues relating to arbitral confidentiality and raised the following points inobiter:

1. Reference to a letter written in the arbitration does not breach arbitral confidentiality if it does not "open the door of the arbitration room" (words taken from the Hassneh case).
2. The confidentiality duty only applies to facts in issue in the arbitration. Any documents referred to therein but not relating to the facts in issue will not be covered by the confidentiality obligation.
3. If SLW had brought proceedings against S (both being "parties to the arbitration"), it may have been a matter for the arbitrator to decide if the arbitral material could be used in the High Court proceedings.

Conclusion

On the face of it, this decision is troubling for arbitration practitioners as it does appear to contradict the fundamental principle of confidentiality. The facts do, however, appear exceptional and some comfort may be taken from that, although arbitration practitioners engaged in a disclosure exercise should continue to be aware of the pitfalls that may await them, in much the same way as those involved in disclosure in the English High Court need to be watchful.