B.C. – court issues sealing orders to avoid “defeating parties’ reasonable expectations of privacy in an ongoing arbitration” – #506

In Stewart v. Stewart, 2021 BCSC 1212, Mr. Chief Justice Christopher E. Hinkson issued sealing orders to protect materials filed (i) in a pending arbitration agreed to as part of the settlement of earlier court litigation and (ii) in court when the parties returned to court post-settlement to dispute compliance with the initial settlement.  Applying the two (2) part test developed for publication bans in Dagenais v. Canadian Broadcasting Corp., 1994 CanLII 39 (SCC) and applied to confidentiality orders in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, Hinkson C.J. determined that “disclosure of this information would be likely to undermine the public policy in this jurisdiction of encouraging arbitrations by defeating the parties’ reasonable expectations of privacy in an on-going arbitration”.  Hinkson C.J. limited his orders to specific documents and affidavit passages filed either in the ongoing arbitration or in court and referenced the confidentiality provisions in BCICAC’s (now VanIAC) former Revised Domestic Commercial Arbitration Rules of Procedure which applied to the arbitration.

Plaintiff filed a Notice of Claim on November 2, 2015 against Defendants.  During the course of the litigation, Mr. Justice Patrice Abrioux as case management judge issued six (6) sets of reasons: Stewart v. Stewart, 2016 BCSC 1576; Stewart v. Stewart, 2016 BCSC 2256; Stewart v. Stewart, 2017 BCSC 1532; Stewart v. Stewart, 2017 BCSC 1728; Stewart v. Stewart, 2018 BCSC 556; and, Stewart v. Stewart, 2018 BCSC 1266.  Following Abrioux J.A.’s appointment to the Court of Appeal, Hinkson C.J. assumed case management and, prior to the present decision, issued a first decision in Stewart v. Stewart, 2019 BCSC 985.

Those decisions set out the background of the disputes and the settlement entered into on October 11, 2018 (“Settlement Agreement”).  That Settlement Agreement provided, among other things, for the sale of Quadra Pacific Properties Corp. (“QPPC”) assets located in Australia, distribution of the sale proceeds and purchase of Plaintiff’s shares in QPPC at fair market value (“FMV”).  If the parties failed to agree on FMV, then the parties agreed in the Settlement Agreement to submit their dispute to arbitration.

Difficulties arose in the implementation of the Settlement Agreement which, following application to the court, resulted in Hinkson C.J. issuing his first decision in Stewart v. Stewart, 2019 BCSC 985.

Hinkson C.J. issued a January 1, 2020 order on consent (“Consent Order”) requiring the parties to use best efforts to negotiate and conclude the form and terms of a specific share redemption agreement and any tax holdback agreement.  At para. 6 in his Consent Order, Hinkson C.J. stipulated that “[n]othing in this Order prevents the parties from seeking document production orders in the arbitration conducted pursuant to the Settlement Agreement”.

As the parties still disagreed over the FMV, an arbitration remained scheduled for November 2, 2020 which provided a reference point for the parties in further exchanges regarding the share redemption agreement and tax holdback agreement.  For example, in the exchanges recorded by Hinkson C.J. at paras 52-107, certain proposals tied their eventual agreement on those issues to the receipt of and result in the anticipated arbitration award.  As of the date of Hinkson C.J.’s reasons, the award had not yet issued.

Plaintiff had filed a notice of application in which he sought a variety of relief, summarized at para. 108, which included specific performance of the Settlement Agreement. The following excerpts the first two (2) of the conclusions seeking specific performance and tying the court’s orders to the pending arbitration award:

(i) In specific performance of the Settlement Agreement, the closing documents in the form attached hereto as Schedule “A”, with the applicable dates and dollar amounts added, are required to be executed by the parties thereto within 48 hours of issuance of any Award in the Arbitration between the plaintiff and Quadra Pacific Properties Corp. (“QPPC”) determining the value of the plaintiffs Class B shares in QPPC (held directly or indirectly);

(ii) In specific performance of the Settlement Agreement, upon receipt of any Award in the Arbitration between the plaintiff and QPPC determining the value of the plaintiffs Class B shares in QPPC (held directly or indirectly), the amount awarded is payable immediately without the requirement for any further steps or documentation being signed or provided by the plaintiff, or any person on his behalf, other than the documentation referred to in paragraph 1(a)(i) of this order, and QPPC is required to pay any amounts awarded to the bank account directed by the plaintiff by wire transfer”.

Plaintiff’s Application also included relief from the court on costs in anticipation of the arbitrator determining a lack of jurisdiction to award costs for the pre-arbitration period of the valuation:

2. Further, if it is determined in the arbitration between the parties that the arbitrator does not have jurisdiction (in whole or in part) to award costs in relation to the pre-arbitration phase of the valuation of Roy’s interest in QPPC, [Plaintiff] will be seeking an order for his costs of that phase of the valuation as damages for breach of contract or as costs in the Action”.

Sealing order – At paras 116-130, Hinkson C.J. addressed Defendants’ request to seek sealing orders in addition to those which the court had already issued in the litigation.

A first sealing order had issued on June 29, 2019 and a second on July 4, 2018.  The first concerned information about tax planning advice and the second concerned financial documents of two (2) of the corporate Defendants.  Hinkson C.J. noted the mechanics of the second order.

It required QPPC to provide the plaintiff with specified information and documents, and provided that those documents were subject to confidentiality provisions. In addition to the implied undertaking which attaches to documents produced in a court action, the documents had to be treated as confidential and marked ‘confidential’. If confidentiality was disputed, the parties were not permitted to file affidavits attaching confidential documents prior to a hearing in court until after an opposing party had and opportunity to seek a sealing order”.

When the parties entered into the Settlement Agreement and therefore settled the litigation and agreed to engage in arbitration to determine the FMV, the valuation exercise required that, during the arbitration, Defendants provided “a large volume of private, sensitive, financial information and documents” in addition to that material given in the litigation to that date.

Hinkson C.J. summed up Defendants’ submissions and followed it with reference to Rule 27 of the Revised Domestic Commercial Arbitration Rules of Procedure (Note: the British Columbia International Arbitration Centre is now the Vancouver International Arbitration Centre (“VanIAC”) as of September 1, 2020 and has issued new, updated rules:

[121] As the action has now returned to this Court, after having been in the private confidential arbitration system, the personal defendants, supported by the corporate defendants, seek further sealing orders to those already extant in these proceedings.

[122] The personal defendants contend that the confidentiality of information and documents at the pre- and post-arbitration stage are governed by the two interlocutory orders and the implied undertaking which applies to documents listed and produced in accordance with the Supreme Court Civil Rules, B.C. Reg. 168/2009 [Civil Rules]. They contend that all of the information and documents produced in the arbitration are protected”.

The VanIAC Rule 27 provides that, unless otherwise agreed by the parties, required by law or necessary to enforce or challenge an award, “all hearings, meetings, evidence, documents (produced or exchanged), Awards and communications shall be private and confidential as between the parties, the arbitration tribunal and the Centre”.

With reference to exhibit number and affidavit pages, Hinkson C.J. listed those documents and passages for which the personal Defendants sought the additional sealing orders.

Hinkson C.J. then turned to the two (2) part test developed for publication bans in Dagenais v. Canadian Broadcasting Corp., 1994 CanLII 39 (SCC), [1994] 3 SCR 835 and applied to confidentiality orders in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41 (CanLII), [2002] 2 SCR 522.

Based on the record before him and in light of the applicable test, Hinkson C.J. agreed to issue a sealing order to ensure that parts of the affidavits should not be made public “or be publicly searchable”.

[128] I find that those parts of the affidavits for which the personal defendants seek a sealing order contain and append confidential and commercially sensitive information. If the information therein became public, it could potentially harm the financial interests of all the parties and undermine QPPC’s interests in the commercial confidentiality of its operations.

[129] In the terms of the Sierra Club test, the disclosure of this information would be likely to undermine the public policy in this jurisdiction of encouraging arbitrations by defeating the parties’ reasonable expectations of privacy in an on-going arbitration”.

Regarding the merits of the remaining relief sought in the Application, Hinkson undertook the analysis at paras 131-335 at granted Plaintiff’s Application in part, adjourned certain paragraphs, denied the other relief and dismissed Defendants’ application seeking a stay of proceedings and vacating earlier orders.

urbitral notes – First, for other decisions addressing confidentiality and arbitration and whether that confidentiality can or will be maintained in the courts, see the earlier Arbitration Notes:

(i) “Québec – judicial protection of parties’ confidentiality promotes public interest in arbitration – #305”. In homologating an award issuing from a consensual, administered arbitration, Madam Justice Marie-Anne Paquette in 79411 USA Inc. v. Mondofix Inc., 2020 QCCS 1104 ordered that the award be kept confidential because (i) doing so encourages the use of arbitration as a dispute resolution mechanism and (ii) the public interest favors confidentiality orders to promote arbitrations and protect the expectations of the parties to the arbitration.  Paquette J. also held that the burden rests on the party seeking the disclosure of otherwise confidential information to demonstrate that the good effects of disclosure outweigh the bad effects of infringing on the confidentiality expectations of parties to an arbitration.  Her approach emphasizes the public interest in arbitration and does not rely merely on the private interests peculiar to the parties.

(ii) “Ontario – confidentiality of arbitration raised as shield to disclosing information relevant to litigation – #238” regarding Vanalt Electrical Construction, Inc. v. Ozz Electric Inc., 2019 ONSC 5893. Defendant alleged that confidentiality of an arbitration involving it and others prevented it from providing Plaintiff with information/documents relevant and probative to quantifying a key claim it made against Plaintiff.  Instead of forcing an issue on the confidentiality, Master Michael Philip McGraw ordered Defendant to re-attend a final time for discovery at which time it could satisfy Plaintiff’s entitlement to clarity and evidence.

(iii) “Federal – confidentiality of arbitration must be re-established independently on appeal to court – #224” regarding Canadian National Railway Company v. Gibraltar Mines Ltd., 2019 FC 225 and Canadian National Railway Company v. Gibraltar Mines Ltd., 2019 FC 963. In a pair of decisions, the Federal Court held that there is no general principle that confidentiality of arbitration proceedings carries over to court when a party appeals the arbitral award.  Even if confidentiality was imposed by statute for the purpose of the arbitration, absent specific wording in the statute, confidentiality does not automatically extend into the courts which are open and public.

(iv) “Québec – court outlines and upholds confidentiality of what is “said, written or done during” arbitration – #102” regarding SNC-Lavalin Inc. v. ArcelorMittal Exploitation minière Canada, 2018 QCCS 3024. Mr. Justice Jean-François Michaud maintained the confidentiality of materials prepared for use in an arbitration limited to two parties and prevented communication of those materials to other parties involved in litigation involving related, overlapping disputes. By maintaining the arbitral parties’ objections based on the confidentiality of arbitration as established by legislation and the arbitral parties’ agreement, Michaud J. held that third parties seeking access to those materials must demonstrate necessity and not merely relevance and convenience of obtaining access. The legislated protection applied only to what is “said, written or done during” arbitration and did not shield access to relevant, admissible documents which existed independent of the arbitration.

(v) “B.C. – arbitral party files counter claim for breach of undertaking to arbitrate and confidentiality triggered by other party instituting litigation – #073” regarding B & L Holdings Inc. v. SNFW Fitness BC Ltd., 2018 BCSC 849. Mr. Justice Leonard Marchand dealt with a request for an adjournment and, in doing so, gave insight into a seldom discussed by-product of litigation involving arbitration.  Marchand J.’s summary of the procedural history included a note that the defendant parties bound by arbitration with one of the plaintiffs filed a counter claim for damages related to plaintiff’s decision to go to public court rather than confidential arbitration.

Second, for the Supreme Court of Canada’s recent analysis of access to court records and retrieval of exhibits once litigation has terminated, see MediaQMI Inc. v. Kamel, 2021 SCC 23.