Scottish Court of Session Decisions

Pursuer: K Campbell QC; Davidson Chalmers LLP

Defender: Barne; Brodies LLP

Third Party Haver: G L McColl; Tods Murray LLP

18 May 2012

[1] In this action for damages for alleged breach of contract and negligence Gray Construction Limited ("Gray") claims from Harley Haddow LLP ("HH") sums which it expended in an arbitration with the National House Building Council ("NHBC") relating to defective foundations of houses at a development in Dunfermline. In particular, Gray avers that NHBC and it referred specified questions to arbitration, including a claim by NHBC for £369,364.06. It avers that the parties settled the arbitration in September 2010 by Gray's payment to NHBC of £110,000. Gray seeks to recover that sum, one-half of the arbiter's charges, and its professional fees and expenses in the dispute with NHBC.

[2] HH sought to recover documents that disclosed the subject matter of the arbitration, including the parties' pleadings and the terms on which the arbitration settled. Parties agreed the terms of a specification of documents and a motion for their recovery was granted on the basis that Gray would lodge the documents relating to the arbitration in a confidential envelope so that the court could be addressed on whether to order disclosure of those documents. The matter comes before me on HH's motion to open the confidential envelope. Gray opposes the motion and the third party haver, NHBC, submits that it is premature to order disclosure.

The relevance of the documents

[3] It was not disputed that, in order to make out its claim for damages, Gray had to show not merely that it had acted reasonably in compromising the arbitration on the agreed terms but also that the settlement was, objectively, a reasonable one (Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314). Mr Barne submitted that HH needed to see the documents in the confidential envelope to prepare for a proof in the action which had been provisionally allocated for August this year. Mr Kenneth Campbell QC explained that Gray intended to produce an affidavit by Mrs Webster, the solicitor who had acted for it in the arbitration with NHBC and in its settlement. That, he submitted, would suffice as her evidence could be tested on cross-examination. Mr Barne disagreed, arguing that that was not sufficient as HH had a right to prepare for the proof, including that cross‑examination, and that it needed to see the documents which were relevant to assessing the reasonableness of the settlement. HH needed to know the legal and factual basis of NHBC's claim against Gray and the circumstances in which Gray settled the claim on the terms which it did. If Gray did not disclose those matters, HH would have to seek a debate to have the action dismissed for want of specification.

The law
(i) Confidentiality of private arbitrations

[4] Counsel agreed that, while there had not been any judicial rulings in Scots law on the right to privacy and the obligation of confidentiality in arbitration proceedings, they were prepared to proceed for the purposes of this motion on the basis that confidentiality extended to all documents produced or created by or on behalf of the parties in connection with the arbitration proceedings (Dolling-Baker v Merrett [1990] 1 WLR 1205).

[5] The jurisprudential basis of the obligation of confidentiality in English law is that it is an implied obligation arising out of the nature of arbitration (Dolling-Baker (above) Parker LJ at 1213; Emmott v Michael Wilson & Partners
[2008] Bus LR 1361, Lawrence Collins LJ at paras 81 and 105). There is no clear authority on the point in Scots law. Nonetheless, absent express contractual provision, I see no difficulty in implying such an obligation in a contract to refer a dispute for determination by means of arbitration. One of the attractions of arbitration is its privacy and this benefit would be negated if a party to the arbitration were not bound to respect confidentiality. It seems to me that such an obligation should be implied unless the terms of the parties' agreement exclude such implication.

[6] I do not need to address in any detail the boundaries of an obligation of confidentiality in relation to arbitration or the nature of the documents which it covers in the context of this motion. We are not concerned with documents that are inherently confidential such as trade secrets but with an obligation of confidentiality arising out of the nature of the arbitration proceedings. While counsel did not engage in a detailed discussion of the issue, I can readily see that pre‑existing documents, which were voluntarily produced in an arbitration but were not otherwise publicly available, and documents produced under compulsion may be protected by implied restrictions as to their use for any purpose other than the arbitral proceedings. Pleadings and other documents created for the purpose of the arbitration may also be subjected to such obligations of confidentiality. But there must be exceptions to those obligations, for example, where a party needs to use such documents to enforce his award or otherwise to protect his legitimate interests or where the disclosure is in the public interest. See, by way of illustration, the default rule set out in the modern statutory code, which is Rule 26 of the Scottish Arbitration Rules in Schedule 1 to the Arbitration (Scotland) Act 2010.

[7] I am content to proceed on the historical understanding that arbitral proceedings were private and therefore confidential. The question for determination in this case is the circumstances in which the court may override the obligation of confidentiality to require disclosure of documents or information in some other form.

(ii) Overriding confidentiality

[8] In Scotland the public interest in the administration of justice can override a private obligation of confidentiality and the court may grant an order for the production of documents covered by such an obligation (Santa Fe International Corporation v Napier Shipping SA 1985 SLT 430, Lord Hunter at p. 432). Whether the court exercises its discretion to do so will depend on the circumstances of each case. It seems to me to be at least arguable that in an arbitration the private obligation of confidentiality may be supported by the public interest in enabling people to resolve their disputes privately if they so wish. But the court must be able to override what remains a private obligation if that is in the interests of justice. Our rules on the recovery of documents differ from the rules of English law in relation to discovery and I do not seek to draw on the details of English case law on this topic so far as they depend on English procedures. But the underlying interests which that case law addresses are essentially the same in both jurisdictions.

[9] In my view the court should take account of a private obligation of confidentiality and seek to strike a balance between respect for the honouring of that obligation and the public interest in the fair administration of justice. Where it is necessary to recover documents which a party holds subject to an obligation of confidentiality in order to achieve the fair disposal of an action, the court will as a norm order the production of those documents. The test is not one of absolute necessity; the court, in deciding how to achieve a fair disposal of the action, may take into account how a party can reasonably prepare to present his case. If the documents are not essential to the action or if the information can be recovered elsewhere without breaching a confidence, the court may exercise its discretion to refuse to order recovery. Similarly, it may consider whether there are less costly ways of gaining the needed information. These considerations, which one finds in Scientific Research Council v Nassé [1980] AC 1028, Lord Wilberforce at pp.1065-1066 and in Emmott (above) Lawrence Collins LJ at para 107 and Thomas LJ at para 127, are consistent with Lord Hunter's decision in Santa Fe (above).

Applying the law in this case
[10] The claim by NHBC against Gray, those parties' engagement in the arbitration, and the settlement which they agreed form the basis of Gray's financial claim in this action. HH submits that it needs to investigate the nature of NHBC's claim and the circumstances of the settlement agreement in order to form a view on whether the settlement was objectively reasonable. Gray intends to produce an affidavit from Mrs Webster setting out her advice which led to the settlement. It has not yet done so. HH will be entitled to cross-examine Mrs Webster concerning the arbitration and Gray will not be able to plead legal adviser/client confidentiality (Evidence (Scotland) Act 1852, section 1 and Whitbread Group plc v Goldapple Ltd 2003 SLT 256, Lord Drummond Young at paras 16 and 17).

[11] To enable HH to prepare in a timely manner for a proof in this action, for which dates have been provisionally reserved in August, it is necessary that it has access to the relevant documents. In my view it would not be consistent with the fair disposal of the action to require HH either to accept Mrs Webster's evidence in chief as determinative of the objective reasonableness of the settlement or to expiscate the facts about the arbitration and settlement for the first time on cross‑examination. I am not persuaded by NHBC's submission that it is premature to determine the application.

[12] HH on recovering the documents will be subject to the standard rule that it can use the documents only for the purposes of the action, unless the court otherwise directs. Mr Campbell QC for Gray and Mr McColl for NHBC confirmed that the documents were not commercially sensitive and did not seek to redact them.

[13] I am satisfied that the recovery of those documents is reasonably necessary to allow HH to prepare for the proposed proof.

Other matters
[14] Mr Barne for HH submitted that Gray had waived confidentiality by making averments about the issues raised in the arbitration and about the terms of the settlement. He referred to Wylie v Wylie 1966 SLT (Notes) 9, BSA International SA v Irvine 2009 SLT 1180 and Scottish Lion Insurance Co Ltd v Goodrich Corporation and Others 2011 SC 534. I do not need to consider those submissions as I have decided the motion on other grounds. I merely observe that such actions by Gray would not amount to waiver by NHBC.

Conclusion
[15] Being satisfied that it is necessary in order to achieve the fair disposal of this action to allow HH to open the confidential envelope, I so order.