Privy Council Curtails Obligation of Confidentiality in International Arbitration

Confidentiality has always been referred to as one of the advantages of choosing arbitration over litigation. However, the extent of this right and its enforcement can be problematic. In a recent appeal to the Privy Council the scope of the principle of privacy in international commercial arbitration had to be considered1 .

Facts

The case involved two insurance companies, Associated Electric & Gas Insurance Services Limited (AEGIS) and European Reinsurance Company of Zurich (European Re) who had entered into a reinsurance agreement dated 31 March 1980. The agreement provided for arbitration in Bermuda. Two separate disputes regarding the obligation of European Re to indemnify AEGIS were referred to separate arbitration tribunals.

A partial award was issued by the first tribunal on 19 January 2000 which essentially determined the critical dispute between the parties. European Re wanted to rely on this award in the second arbitration but AEGIS argued that they were not entitled to do so. AEGIS alleged that this would be in breach of the confidentiality obligation and that issue estoppel was not a remedy available to European Re as it was essentially an evidentiary principle. All procedural matters fall within the powers of the arbitration tribunal. On this basis AEGIS obtained an ex parte injunction to restrain European Re from disclosing the contents of the award. European Re applied to have the injunction discharged; it was refused in the first instance but was allowed by the Court of Appeal which lifted the injunction. AEGIS subsequently appealed to the Privy Council seeking the reinstatement of the injunction.

The Privy Council confirmed that AEGIS had to demonstrate that they were entitled to this injunction. Essentially the effect of the injunction obtained by AEGIS was to stop European Re referring to the award where the tribunal had decided the key issue between the parties and thereby precluding European Re from raising a plea of issue estoppel in the second arbitration.

AEGIS raised two main arguments in support of the injunction. First, they relied on the ordinary principles of the privacy of arbitration and in particular a specific stipulation of a confidentiality agreement made during the first arbitration. Secondly, they argued that the plea of issue estoppel by European Re (while not challenging the respondent's bona fides) was so lacking in merit as to be an abuse of process.

Confidentiality

The procedural direction signed...