Arbitration

• Citation: (2011) 12 SAL Ann Rev 55
• Date: 01 December 2011
• Published date: 01 December 2011

Nature of arbitration

Confidentiality obligation

4.1 Confidentiality as a distinct feature of arbitration has often been assumed. However, the UNCTRAL Model Law on International Commercial Arbitration (Model Law) does not prescribe confidentiality. Whilst such an obligation has often been included in the rules of arbitration (eg, SIAC Rules, LCIA Rules) not all institutional rules contain such provisions (eg, International Chamber of Commerce (ICC) Rules 1998 the ICC 2012 Rules retain the same feature, but allows the tribunal to make orders concerning the confidentiality of the arbitration proceedings). The concept of privacy in arbitration is derived from the fact that parties have agreed to submit their disputes to arbitration only between them. To such a rule there are exceptions such as (a) where the parties consented to disclosure; or (b) disclosure is made pursuant to an order of court; or (c) disclosure is made following grant of leave of court; or (d) if disclosure is reasonably necessary for the protection of the legitimate interests of a party vis--vis a claim by a third party; or (e) where the interest of justice requires such disclosure (see Halsbury's Laws of Singapore vol 1(2) (LexisNexis, 2011 Reissue) at para 20.004).

4.2 The case of AAY v AAZ[2011] 1 SLR 1093 (AAY), raised several aspects of the confidentiality obligation that deserve attention. The plaintiffs in that case were formerly employed by a New Jersey company, AAZ, in their Singapore branch. The AAZ Singapore branch was subsequently reorganised and incorporated as CCZ and was involved in the marketing, distributing, producing and servicing of equipment, including automated industrial cleaning systems and test equipment. The plaintiffs resigned en bloc together with 19 other employees from CCZ's third-party distributorship division in 1992. Following discussions with the first and second plaintiffs, AAZ sold all its shares in CCZ to the plaintiffs. The sale agreement provided for disputes arising out of, or in connection with, the agreement to be referred to, and finally resolved by, arbitration. Shortly thereafter the plaintiffs rejoined CCZ. The defendant, who believed that it was a victim of the plaintiffs' conspiracy to take over CCZ, started civil proceedings in the United States in July 1993 alleging fraud, conspiracy, negligent misrepresentation, conversion and federal securities fraud. The suit was dismissed forum non conveniens and the dismissal was upheld by a United States Court of Appeal. AAZ then started arbitration in Singapore in August 1994 against the first and second plaintiffs. That arbitration did, however, not proceed. Then in 1997, AAZ received a letter which supported his suspicions that the plaintiffs had committed various fraudulent acts in depressing the net asset value of CCZ and decided to commence court action in the High Court. On the application of the plaintiffs for stay, the parties agreed to refer the entire dispute to arbitration. This agreement was embodied in a consent order of court dated 23 February 1999 (Consent Order).

4.3 By its partial award on liability made on 30 June 2005, the tribunal found the plaintiffs liable for fraudulent misrepresentation, conspiracy and breach of fiduciary duties owed to the defendant and ordered damages to be assessed. The plaintiffs' application to set aside the award was rejected by the court. The assessment phase of the arbitration then resumed with the tribunal issuing orders for the discovery of documents relating to the accounts of CCZ. On 8 August 2006, the defendant made a report to the Commercial Affairs Department (CAD) and provided to the CAD several documents including the partial award of 30 June 2005 and a document received from the plaintiffs pursuant to an order of discovery made by the tribunal. The plaintiffs took the view that by lodging the report, AAZ had repudiated the arbitration agreement. Following confirmation that CAD would not be taking any action, the plaintiffs commenced court action seeking to set aside the Consent Order, a declaration that they be discharged for the obligations to arbitrate and an injunction against the continuation of the arbitration. The main issues the court had to consider were whether there was an obligation of confidentiality attached to the arbitration commenced pursuant to the Consent Order and if the obligation was breached and whether the plaintiffs were entitled to terminate the arbitration.

4.4 On the issue of confidentiality, the plaintiffs argued, that by reason of the parties' adoption of the SIAC Rules 1997 (SIAC Rules), the parties were obliged under r 34.6 of the SIAC Rules to treat all matters relating to the arbitration as confidential including the existence of the arbitration proceedings, as well as any award made. Chan Seng Onn J found, however, that although the arbitrator had proceeded on the basis that the SIAC Rules applied to the arbitration (applying the same in relation to security for costs application), he did so without the express agreement of the parties. Instead, in a direction made in 1998 the arbitrator had recorded that the parties agreed that Model Law set out in the First Schedule to the International Arbitration Act (Cap 143A, 1995 Rev Ed) would be referred to as the Rules in the arbitration. The learned judge pointed out, quite properly, that such a direction was superfluous as that would be the lex arbitri and not the procedural rules of the arbitration. The SIAC Rules not having been adopted by the parties, and the Model Law being silent on confidentiality, the court then had to consider whether, absent express agreement, there was an implied covenant of confidentiality.

4.5 Chan J examined the decisions from the UK (eg, Dolling-Baker v MerrettWLR[1990] 1 WLR 1205; Colman J in Hassneh Insurance Co of Israel v Steuart J MewUNK[1993] 2 Lloyd's Rep 243; the English Court of Appeal in Ali Shipping Corporation v Shipyard TrogirWLR[1999] 1 WLR 314; the English Privy Council on appeal from Bermuda in Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of ZurichWLR[2003] 1 WLR 1041 and John Forster Emmott v Michael Wilson & N Partners LtdUNK[2008] 2 All ER (Comm) 193) which recognised an implied obligation of confidentiality, albeit characterised by varying exceptions, and contrasted them against the approach of the Australian High Court in Esso Australia Resources Ltd v Plowman (Minister for Energy and Minerals)UNK(1995) 128 ALR 391, which recognised privacy in arbitration, but rejected a general duty of confidence. He also noted that both Kan Ting Chiu J in Myanma Yaung Chi Oo Co Ltd v Win Win Nu[2003] 2 SLR(R) 547 and Lai Siu Chiu J in International Coal Pte Ltd v Kristle Trading Ltd[2009] 1 SLR(R) 945 had decided to adopt the English approach and recognised a general implied obligation of confidentiality in arbitration. Chan J concluded that as a principle of arbitration law at least in Singapore and England, the obligation of confidentiality in arbitration will apply as a default to arbitrations where the parties have not specified expressly the private and/or confidential nature of the arbitration: AAY at [55].

4.6 Chan J stated that as a principle of Singapore law, confidentiality is now a substantive common law-developed doctrine of arbitration. Chan J also went on to consider if the disclosure by AAZ, or on its behalf to the CAD, fell within any exception to such an obligation to maintain confidentiality. The plaintiffs argued that such disclosure undermined the public interest in encouraging and protecting arbitrations and their confidentiality and could be abused by a party using such information as a threat or bargaining tool and as such should be proscribed. AAZ on the other hand submitted that, if materials obtained in arbitration revealed a prima facie commission of criminal offences, it would be in the public interest to except it from confidentiality obligations for a report being made to the law enforcement authority.

4.7 Chan J adopted a balanced approach and took the view that confidentiality is a lesser interest than the public interest of having criminal wrongdoing revealed to the relevant authorities for their investigation and accordingly disclosure to the appropriate authorities where there is reasonable suspicion of criminal conduct is thus an exception to the obligation of confidentiality: AAY at [72].

4.8 The plaintiffs also argued that the report to the CAD was actuated by the motive to coerce them to settle on the terms of AAZ. To this, Chan J's response was that, as such disclosure to the appropriate authorities is an exception and not a defence to the confidentiality obligation, the motive for doing so became irrelevant. In any event, Chan J held that, even if there was a breach of confidentiality, it could not be said that the plaintiffs had been deprived of the benefit of the arbitration to entitle them to repudiate it nor did the defendant objectively evince an intention to no longer be bound by the arbitration agreement.

4.9 The decision in AAY also raises some questions concerning the duty of arbitrators to report any suspected commission of a crime or suspected criminal activities. If a positive duty is indeed so imposed, the consequences of a failure to report is something about which arbitrators may have some degree of unease.

Enforcement of arbitration agreements

Stay of court proceedings: Incorporation by reference; conflicting jurisdiction and arbitration clause

4.10 A party to an arbitration agreement who commences a court action to litigate a claim coming within the arbitration agreement will have its action stayed and be directed to arbitration unless the arbitration clause is null and void, inoperative or incapable of being performed (an obligation imposed under Art II(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 June 1958) (330 UNTS 38...