Posted on by Jim McLandress

Federal – Arbitrations may be private but may NOT be confidential – #861

In SOS Marine Inc. v. M/V Gentle Seas (Ship), 2024 FC 1042 (CanLII), (“SOS Marine“) the Court rejected arguments that information disclosed in arbitral proceedings should be kept confidential in an unrelated court proceeding involving third parties.

The case arises in the context of a claim in the Federal Court of Canada by a Quebec-based maritime service company (SOS Marine Inc.) for unpaid fees relating to the cleaning of cargo holds on the ship M/V Gentle Seas (the “Action”). The Defendants were the owners and others interested in the vessel. The Defendants appealed an order of a Case Management Judge requiring them to answer questions and undertakings improperly objected to and refused during the examination for discovery of the Defendants’ representative in the Action. The questions and undertakings related to an arbitration between the Defendants and the vessel’s charterer. The latter was not a party to the Action. The Case Management Judge held the information sought was relevant to the issues in the Action and that any confidentiality concerns could be raised and addressed pursuant to the applicable provisions of the Federal Court Rules.

In response to the Defendants’ appeal the Plaintiff argued the information was relevant and producible in the Action.

The Court addressed two issues:

  1. The applicable standard of review, which I won’t deal with. (The court held it was “palpable and overriding error”; so, nothing new there.)
  2. Whether, because arbitration is by its nature private, disclosure of information disclosed in the arbitral proceedings in a different proceeding violates the implied undertaking rule.

The Court dismissed the appeal for the following reasons:

  1. Cases and commentary say, “confidentiality attached to arbitration documents does not rise to the level of privilege, and if those documents are relevant to subsequent litigation between the same or third parties, they should be disclosed in the interest of justice of Court proceedings”. The Court cited, Adesa Corp. v. Bob Dickenson Auction Services Ltd. 2004 ONSC 45491 (“Adesa”) and Trans-Send Freight Systems Ltd. v Markel Insurance Company of Canada, 2009 ONSC 7107 (“Trans-Send”).
  2. While the implied undertaking rule may be part of “litigation privilege”, the Defendants provided no authority or rationale for why the rule should extend to private arbitration proceedings in general, or to the “actual pleadings in the arbitration proceedings” in particular.
  3. The Defendants never raised the implied undertaking argument before the Case Management Judge and, so, citing Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65, it could not be said the Case Management Judge erred in failing to consider a submission never put to her. 
  4. The Case Management Judge did not commit a reviewable error in finding, “the arbitration proceedings between the Defendant Owners and the charterers were relevant to the extent they contain claims concerning the hold cleaning services and/or liability for the delays incurred in relation thereto. The hold cleaning services and the liability for the delays incurred in relation thereto are clearly disputed issues of fact in this proceeding involving the Defendant Owners.”

Of note, the Court also accepted that the Defendants’ confidentiality concerns could be raised and addressed pursuant to the Federal Court Rules.

Contributor’s Notes:

This is a procedural decision related to discovery in an action in the Federal Court. Not surprisingly, it doesn’t go into extensive detail on any of the issues raised. However, it does provide a springboard to explore several interesting points, including:

  1. It serves as a reminder that privacy has its limits. Confidentiality does not rise to the level of privilege, so preserving confidentiality needs to be addressed directly by the parties or found elsewhere, e.g., institutional rules or the parties’ arbitration agreement. 
  2. How would any confidentiality concerns be addressed in the Federal Court Rules?
  3. What effect would a court give to a confidentiality agreement between the parties to the arbitration?
  4. Should a party to both proceedings (the arbitration and, in this case, the Action) give their arbitral counterparty notice before producing the requested/compelled documents?

Confidentiality – The ability to keep a dispute confidential is often given as one of the benefits of arbitration. Yet practitioners in the field understand that ostensible benefit comes with some significant caveats. Parties to an arbitration are, of course, free to craft their own confidentiality requirements as part of, or as an incident to, their arbitration agreement. Arbitral tribunals can also make confidentiality orders. Some, but not all, institutional rules address confidentiality. Those that do, approach it differently. For example, some extend confidentiality only to the arbitrators but not to the parties themselves, some concern only documents, and some create a broad confidentiality applicable to all aspects of the arbitration.

As for the courts, international law is inconsistent. Ali Shipping v Shipyard Trogir [1997] EWCA Civ 3054(“Ali Shipping”) held there is an implied duty of confidentiality in international arbitration agreements, but the duty is not absolute. On the other hand, the Court in Esso Australia Resources Ltd v Plowman [1995] HCA 19, refused to imply such an obligation. Canadian law is similarly unsettled. There are only a handful of relevant decisions. Of note:

  • In GEA Group AG v. Ventra Group Co, 2009 ONSC 17992 (“GEA Group”), the Court saw “merit in the position of a confidentiality obligation inherent to a private arbitration” but rejected an argument that any “obligation of confidentiality that adheres to an arbitration proceeding automatically carries over to a court proceeding.”
  • In McHenry Software Inc. v. ARAS 360 Incorporated, 2014 BCSC 1485 (“McHenry”), the Court cited GEA Group for the proposition, “there is no general principle that the confidentiality of arbitration proceedings carries over to court proceedings when the arbitration is appealed.” Significantly, in rejecting the request for a sealing order it emphasized the Petitioner was not arguing a sealing order was necessary to protect proprietary secrets.
  • On the other hand, in 2010, the Québec Court of Appeal thoroughly canvassed the competing positions in Rhéaume c. Société d’investissements l’Excellence, 2010 QCCA 2269, and concluded, “allowing the parties to frame in advance whatever confidentiality agreement suits them rather than attempting to imply the existence of one after the fact is entirely consistent with the extensive freedom of contract the legislature gives parties to arbitration.” Several other Québec decisions, most recently, Gestion Christian Gamache inc. v. Desgagniers, 2024 QCCS 1860, have taken a similar view in interpreting the Civil Code of Québec.

Two things are clear, however.

First, Canadian courts have rejected any notion of an “arbitration privilege”. This was the case in Adesa and in Trans-Send, both of which were adopted in SOS Marine. The Court in GEA Group and in McHenry Software Inc. v. ARAS 360 Incorporated, 2014 BCSC 1485, took the same view. If information disclosed in an arbitration is relevant to a court proceeding and not otherwise subject to a recognized privilege, it is produceable in a court proceeding. That the information may have been produced in a confidential arbitration does not magically make it privileged.

Second, any notion of confidentiality – whether created by institutional rules, party agreement, or tribunal order – is not absolute. All are subject to judicial override. Even those cases, like Ali Shipping, that recognize an implied duty of confidentiality, are careful to define a (non-exhaustive) list of exceptions to maintaining confidentiality.

What can we make of the Court in SOS Marine accepting the Defendants’ confidentiality concerns could be addressed under the Federal Court Rules? Courts across the country have the authority to issue a sealing order under the right circumstances, e.g., Federal Court Rule 151. The Supreme Court of Canada’s decisions in Sierra Club, 2002 SCC 41, and Sherman Estate v. Donovan, 2021 SCC 25, remain the leading Canadian cases on sealing orders. They establish three core prerequisites to obtaining a sealing order that would overcome the presumption of court openness: (1) court openness poses a serious risk to an important public interest; (2) the sealing order is necessary to prevent that risk because reasonable alternative measures won’t suffice; and (3) the benefits of the sealing order outweigh its negative effects. From Sherman, it’s clear there is a high threshold to obtain a sealing order. It’s also clear that reasonable alternatives to a sealing order – redaction being a prime example – must be carefully considered.

For commercial arbitrations a court may be open to reasonable approaches to preserving at least some of the confidentiality of an arbitral proceeding but, that does not mean a blanket sealing order would be palatable. Two important policy considerations are at play, allowing parties keep their disputes private and the open court principle. From Sierra Club and Sherman Estate it’s clear sealing orders should be a rarity. However, neither was an arbitration case in which there was a clear public policy interest in confidentiality. Any attempt to keep information filed in court from the public eye will be heavily influenced by how the parties themselves have treated the information. If sensitive commercial information is to be produced during an arbitration, robust confidentiality agreements should be in place and any such information should be carefully identified and handled during the arbitration itself. Even then, there is no guarantee a court will keep some or all the information confidential. When it comes to a subsequent court proceeding all reasonable alternatives to a sealing order should be exhausted before taking that step. Seeking a sealing order should be seen as a last resort and limiting the information sought to be protected to the greatest extent possible should be a given. For example, in Subway Franchise Systems v. CBC, 2019 ONSC 2584, the Court accepted that six financial documents out of 1045 documents contained sufficiently sensitive information to warrant their being sealed. 

Is notice required? – There appears to be little, if any, caselaw regarding a party’s obligation to give notice to their counterparty of a potential breach of confidentiality because of a court order requiring disclosure.

Standard-form NDAs typically include an obligation on the recipient of confidential information to provide the disclosing party with notice if the recipient is being required by legal process to disclose that information. Such a term could, indeed should, be included in any confidentiality agreement related to an arbitration. But that’s a contractual solution to the problem. Failing that, there doesn’t appear to be a free-standing common law obligation on the party in possession of the confidential information (in the SOS Marine case, the Defendant ship owners) to notify another party with a (presumed) interest in maintaining the confidentiality of the information (in SOS Marine the party that chartered the Gentle Seas) regarding a potential disclosure of that information.

However, might there be a contractual obligation to do so under the Bhasin v Hrynew 2014 SCC 71, line of cases? Parties must agree to submit to arbitration. Arbitration is a contractual process. Commercially sensitive information is regularly disclosed in arbitration proceedings. It isn’t hard to conjure a set of facts where a party to an arbitration could suffer significant financial harm if such information were disclosed through a public court proceeding, harm that might have been avoided had they been given the opportunity to protect their interests. That being so, in the absence of specific contractual language, institutional rules, or tribunal order that addresses a need for notice, could the concept of good faith performance of contractual obligations contemplated by Bhasin be extended to require a party to an arbitration agreement (under Canadian law) to notify the other party/parties to the arbitration if a subsequent legal process threatens to breach that confidentiality? This case comment merely poses the question. We can save a more robust answer to another day but until then, the safer course would be to provide notice to the other party(ies). Meanwhile, however, I’d be happy to have anyone’s thoughts on the subject.