What should an arbitrator in an English-seated arbitration do (legally and/or ethically) when they suspect one or both parties to the arbitration has committed, is committing or intends to commit a criminal offence?

The issues an arbitrator might face

There are various ways in which an issue as to a criminal offence might arise in the context of an arbitration. 

Sham arbitrations. Is an arbitrator who grants the award sought in the following scenarios guilty of any offence? Is the arbitrator under any obligation to report the matter?:

  • Sham arbitration as a means of laundering money. The dispute has been fabricated as a means of obtaining an award to justify the payment of money, which represents the proceeds of crime, from one party to another, typically through the client accounts of the respective parties’ law firms. 
  • Sham arbitration as a means of re-characterising a payment. There might also be cases where the money or property in issue is not the proceeds of any criminal activity. For example a deal between the parties whereby one is to pay the other certain monies or transfer certain property. Alternatively, one party simply wishes to gift money or other property to the other. Simply gifting the money, or paying the money or transferring the property in settlement of an obligation, would give rise to some tax liability (e.g. inheritance tax, VAT, a capital gain) which the parties wish to avoid. The parties fabricate a completely different claim (e.g. a claim in libel) refer it to ad hoc arbitration, settle it for the same amount as the ‘real’ payment, have the settlement recorded in an award, and then use the award as the pretext for paying the money.
  • Sham arbitration as an instrument of fraud. There may be even more elaborate schemes, where a fraudster makes a fabricated arbitration claim against a party, and the fraudster’s accomplice, who is an employee or director of the respondent, uses his authority to settle the unwarranted claim contrary to his employer’s interests, or otherwise ensures that the claim succeeds. 

Should the arbitrator render an award giving effect to the contract in the following scenarios?:

  • Contract obtained by criminal means. It comes to light in the course of the arbitration that the contract which is sought to be enforced in the arbitration was obtained by way of bribery or the threat or use of violence, such as to constitute a crime. Neither party takes the point that the contract is void for bribery or duress. 
  • Contract is illegal. It comes to light in the course of the arbitration that the contract which is sought to be enforced is void for illegality (e.g. a price fixing agreement). Neither party takes the point that the contract is void for illegality. Should the arbitrator render an award giving effect to the contract?
  • Evidence of incidental wrongdoing. In the course of the arbitration, evidence emerges of some wrongdoing having been committed, or as being planned, by a party, witness, counsel or someone else. Is the arbitrator ever under a positive legal duty to pass the information to the authorities? If the arbitrator has no such duty, and elects to report the matter anyway, are they in breach of any duty of confidentiality owed to the parties? Obviously evidence of all sorts of things might come to light in an arbitration:
  • Evidence of conduct which constitutes a criminal offence as a matter of English law. 
  • Evidence of conduct which constitutes a criminal offence in some other jurisdiction, and which would, had it been committed in England, also have constituted a criminal offence as a matter of English law.
  • Evidence of conduct amounting to a criminal offence in some other jurisdiction, which would not, had it occurred in England, constitute a criminal offence as a matter of English law. 
  • Breach of a professional or industry regulatory requirement. It comes to light in the course of the arbitration that a party operating in a regulated industry or profession (e.g. financial services, power, medicine) has committed or will commit a breach of the regulations imposed by the regulator. 
  • Breach by lawyer of a professional obligation. In the course of the arbitration, the lawyer acting for a party acts in breach of a relevant professional obligation. 
  • Evidence of unpaid tax. In the course of the arbitration, evidence emerges to show that a party has not paid the correct amount of tax (such that, as well as being liable to pay the tax and interest, they would also be liable to pay a fine). 
  • A threat to public health or the environment.
  • A breach of planning law. For example, that a building was constructed without the necessary planning permission.

Section 33 duty and duty not to resign without reasonable cause

The only duties to the parties which are imposed on the arbitrator by the Arbitration Act 1996 (the “1996 Act”) are:

  • The general duty in section 33 (act fairly and impartially, give each party a reasonable opportunity of putting its case, adopt suitable procedures). The effect of Article 29 is that, even if the arbitrator breaches this duty, provided the arbitrator was in good faith, an affected party will have no recourse against the arbitrator.The affected party’s only remedy for breach of this duty is to have the award set aside under section 68(2)(a), and then only if the arbitrator’s breach of section 33 has caused the party substantial injustice.
  • A duty not to resign? Section 25 provides that the arbitrator and the parties may agree what is to happen if the arbitrator resigns. Absent such agreement, the Act seems to contemplate that the arbitrator who withdraws might be liable for breach of some duty owed to the parties - presumably the contractual duty to provide the services of an arbitrator. Section 25(3) and (4) seem to contemplate that it will be a defence to such a claim to show that it was “reasonable” to have resigned.

In practice, the institutional rules generally seek to exclude any liability which might otherwise arise out of an arbitrator’s decision to resign. The ICC Rules provide:

Article 40: Limitation of Liability

The arbitrators, any person appointed by the arbitral tribunal, the emergency arbitrator, the Court and its members, the ICC and its employees, and the ICC National Committees and Groups and their employees and representatives shall not be liable to any person for any act or omission in connection with the arbitration, except to the extent such limitation of liability is prohibited by applicable law.”

The LCIA Rules provide:

Article 31 Limitation of Liability

31.1 None of the LCIA (including its officers, members and employees), the LCIA Court (including its President, Vice-Presidents, Honorary Vice-Presidents and members), the Registrar (including any deputy Registrar), any arbitrator, any Emergency Arbitrator and any expert to the Arbitral Tribunal shall be liable to any party howsoever for any act or omission in connection with any arbitration, save: (i) where the act or omission is shown by that party to constitute conscious and deliberate wrongdoing committed by the body or person alleged to be liable to that party; or (ii) to the extent that any part of this provision is shown to be prohibited by any applicable law.”

An implied duty of care owed to the parties?

Does an arbitrator owe the parties a duty to exercise reasonable care and skill? Arguably the answer is yes.

Section 13 of the Supply of Goods and Services Act 1982 provides:

“In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.”

Arbitrators undoubtedly supply a service to the parties. There might be some instances where arbitrators do not act in the course of a business (for example, when religious or community leaders act as arbitrators on a not-for-profit basis). There might also be some instances where the parties have no direct contractual nexus with the arbitrators (for example, in an ICC arbitration, is there a contractual nexus between the parties and the arbitrators, or is the only contract with the institution?).

It seems sensible to assume that an arbitrator does owe the parties a duty to exercise reasonable care and skill. It might be that such a duty is implied into a contract between the parties and the tribunal, either under section 13 of the 1982 Act or at law. It might be that there is no contractual nexus between parties and arbitrators, but such a duty nonetheless arises because of an ‘assumption of responsibility’ by the arbitrator.

Any such duty would, however, be covered by the immunity in section 29 of the 1996 Act, with no liability flowing from a breach of the duty unless the arbitrator acted in bad faith.

Arbitrator’s contractual duty of confidence to the parties

The 1996 Act does not contain any express provision about the confidentiality of arbitration proceedings. 

In Emmott v Michael Wilson & Partners [2008] EWCA Civ 184 Collins LJ held:

“81. … there is … an implied obligation (arising out of the nature of arbitration itself) on both parties not to disclose or use for any other purpose any documents prepared for and used in the arbitration, or disclosed or produced in the course of the arbitration, or transcripts or notes of the evidence in the arbitration or the award, and not to disclose in any other way what evidence has been given by any witness in the arbitration, save with the consent of the other party, or pursuant to an order or leave of the court”.

84. The implied agreement is really a rule of substantive law masquerading as an implied term. …

88. The English courts have been strongly influenced in the development of exceptions to the basic rule of confidentiality in arbitration by the principles of banking confidentiality in Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 (CA), where in a famous passage, Bankes LJ said:

“In my opinion it is necessary in a case like the present to direct the jury what are the limits and what are the qualifications of the contractual duty of secrecy implied in the relation of banker and customer. There appears to be no authority on the point. On principle I think that the qualifications can be classified under four heads: (a) where disclosure is under compulsion by law; (b) where there is a duty to the public to disclose; …””

There does not appear to be any direct authority as to whether an arbitrator owes a similar implied obligation to the parties. But since the parties’ duty is said to “arise out of the nature of arbitration itself”, it seems very likely that the arbitrator also owes such a duty. 

In practice, an arbitrator will often make an express confidentiality agreement with the parties. For example, under the ICC Rules, the parties and arbitrators are all required to sign “Terms of Reference”, which typically set out such a duty expressly.

Contractual duty to render an enforceable award if it is possible to do so?

The preamble to the ICC Rules provides that:

“In all matters that are not expressly provided for in the ICC Rules, the Court and Arbitral Tribunal act in the spirit of the Rules and make every effort to have an enforceable Award”

The LCIA Rules provide:

“32.2 For all matters not expressly provided in the Arbitration Agreement, the LCIA Court, the LCIA, the Registrar, the Arbitral Tribunal and each of the parties shall act at all times in good faith, respecting the spirit of the Arbitration Agreement, and shall make every reasonable effort to ensure that any award is legally recognised and enforceable at the arbitral seat.”

Whether these provisions are purely aspirational, or instead actually impose any kind of actionable duty on the arbitrators is debatable, and in any case (as previously noted) both sets of rules seek to exclude liability for any breach to the maximum degree permissible.

No duty to report knowledge or suspicion of offences by others - the basic position in English criminal law

Historically, there was an offence at common law called “misprision of felony”, which made it a crime for D, having knowledge of a felony, to fail to report it to an appropriate authority.

The offence was abolished by the Criminal Law Act 1967, which also abolished the distinction between misdemeanours and felonies.

The result is that, at common law, it is not a crime for an arbitrator, who knows or suspects that a party (or witness or lawyer) has committed, is committing or intends to commit a crime, simply to fail to report his knowledge or suspicion to the authorities on his own initiative. Only if he is called as a witness in court proceedings and declines to answer questions put to him is he guilty of an offence (namely contempt).

Arrangements” under the Proceeds of Crime Act 2002

The basic position at common law was been modified to some extent by the Proceeds of Crime Act 2002 (“POCA”). 

Section 328 provides:

Arrangements

(1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

(2) But a person does not commit such an offence if:-

(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent

(b) he intended to make such a disclosure but had a reasonable excuse for not doing so;

…”

Property is “criminal property” if it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and the alleged offender knows or suspects that it constitutes or represents such a benefit. “Criminal conduct” is conduct which constitutes an offence in any part of the United Kingdom, or would constitute an offence in any part of the United Kingdom if it occurred there.

A person who might otherwise commit the offence in section 328 can avoid doing so if “before he does the act mentioned in subsection (1)” he makes an authorised disclosure to the National Crime Agency, asking for consent to do the prohibited act, and “he has the appropriate consent”. This is defined in section 335. Essentially, upon making an authorised disclosure, there follows a 7 day “notice period”. The authority then has 7 working days in which to give notice refusing consent. If no such notice is received, the person making the authorised disclosure is treated as having the appropriate consent. If consent is refused within the 7 day period, there follows a further 31 day “moratorium”. Once that moratorium expires, the person making the authorised disclosure is then treated as having the appropriate consent.

SOCA provides (section 338(4) that “an authorised disclosure is not to be taken to breach any restriction on the disclosure of information (however imposed)”.

How might an arbitrator commit an offence under section 328 POCA?

An arbitrator will commit an offence if he “becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person”. The issue is whether an arbitrator might, by issuing an award, bring himself within this definition.

Section 29 of the 1996 Act provides that “an arbitrator is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith”. The natural assumption is that this concerns only civil liability. English law does, however, use the word “liable” to refer both to civil liability and liability to a criminal penalty. For example, section 334 of POCA provides:

“(1) A person guilty of an offence under section … 328 … is liable -

(a) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both, or

(b) on conviction on indictment, to imprisonment for a term not exceeding 14 years or to a fine or to both.”

The issue of whether section 29 immunity extends to a criminal liability appears never to have been considered and we assume, for present purposes, that it does not.

Reference has already been made to sham arbitrations where the award was being sought as a cover for moving criminal funds, or to commit a sophisticated fraud, with an insider fabricating and then settling an arbitration claim against (for example) his employer. 

There is then the situation where a fabricated cause of action is used to obtain an arbitration award so that a payment which would have been made in any event can be characterised as having been made for a different reason, so as to avoid a tax liability.

It seems unlikely that parties to such a sham arbitration (who are, in reality, the same person or very closely connected) would go so far as to fight their fabricated dispute all the way to a hearing, with the tribunal being asked to make a detailed award on the merits. Rather, the case would ‘settle’ at an early stage, and the tribunal would be asked to issue a consent award.

From the point of view of the tribunal, such sham arbitrations would generally be difficult or impossible to differentiate from genuine arbitrations. We all have experience of disputes which settle very shortly after an arbitration is commenced, with the tribunal then being asked to record the settlement agreement in an award, having never considered the detail of what is alleged. In such cases, the people who are best placed to detect a sham are not the arbitrators, but the lawyers involved. In these cases, it is hard to see how the necessary “knowledge or suspicion” would ever arise on the part of the arbitrator.

An arbitrator who did know or suspect that an arbitration was a sham of the kind described above would seem to have two options:

  • Object under s.51(2) of the 1996 Act, refuse to issue the award and resign.Resignation under such circumstances is very likely “reasonable” for the purposes of section 25 of the 1996 Act, and so will give rise to no liability, even if the arbitrator is not protected by an express exclusion of liability in the arbitration agreement / institutional rules.
  • Report the matter to the NCA and ask for consent to issue the award (perhaps mindful of an obligation imposed by institutional rules to render an enforceable award if it is possible to do so). If “the appropriate consent” is obtained within the meaning of section 335, proceed to issue the award.

Where, however, the award is being sought as a means of committing a fraud (whether on the respondent or the revenue) there is a further problem. The arbitrator who issues such an award having obtained “the appropriate consent” will not be guilty of any offence under section 328, but they could still be guilty of aiding and abetting criminal fraud or a revenue offence. The safest course is undoubtedly not to issue an award and to resign.

Reference has also been made to the situation where an arbitration claim is brought on a contract which was either obtained by way of a crime (e.g. bribery, duress) or where performance of the contract itself constitutes a crime (e.g. a contract for payment of a bribe, a contract for the sale of stolen goods, a contract for the distribution of the proceeds of a crime). In either case, any payment which the arbitrator ordered a party to make under the contract would meet the definition of criminal property. In such a case, the arbitrator’s options would be the same - refuse to issue an award or report the matter to the NCA and ask for consent before doing so.

Such a claim sounds inherently unlikely, and one might assume that where the contract is void for illegality/duress/bribery this will usually be raised as an issue in the arbitration. Nonetheless, it is possible that an arbitrator might be faced with a modern day Everett v Williams (1725). That is the case where Everett sought to bring a claim in the English courts against Williams claiming an account of the profits of a partnership between himself and Williams. His claim stated that he and Williams were “skilled in dealing in several sorts of commodities” and that they “proceeded jointly in the said dealings with good success on Hounslow Heath, where they dealt with a gentleman for a gold watch”, adding that Hounslow Heath “was a good and convenient place to deal in, and that the said commodities were very plenty at Finchley aforesaid” and that they had “dealt with several gentlemen for divers watches, rings, swords, canes, hats, cloaks, horses, bridles, saddles, and other things to the value of ₤200 and upwards”. Everett’s claim was evidently for his share of the proceeds of a string of robberies which the pair had carried out, and was dismissed as being both “scandalous and impertinent”. Everett’s solicitors were arrested and fined, and Everett and Williams were ultimately hanged.

A modern-day Everett Inc and Williams Limited might conceivably refer to arbitration a dispute about a subtler agreement to do something unlawful, in circumstances where neither wants to raise an illegality defence, because they want the contract to remain in place for the long term, and do not want to expose their own historical conduct. An example might be an illegal cartel agreement between manufacturers - something like the Phoebus cartel in the 1920s and 30s where most of the world’s manufacturers of lightbulbs agreed not to make lightbulbs which lasted more the 1,000 hours. Sample bulbs made by all the members of the cartel were selected and tested periodically. There was a detailed agreement about the fines that a member had to pay to the other members if its bulbs were found to exceed that limit, and according to how much the limit was exceeded by. One can easily imagine a modern cartel to limit laptop battery life, or the robustness of mobile phone touch screens.

The ‘failure to disclose’ offence in POCA does not apply to arbitrators

Part 7 of the Proceeds of Crime Act 2002 creates other criminal offences related to money laundering. These fall into two categories: those of general application and those which apply only to the “regulated sector”. 

One of the offences which only applies to those in the regulated sector is that in section 330. That offence is committed: (i) when someone knows or suspects that another person is engaged in money laundering; (ii) the matter or information on which his knowledge or belief is based, or which gives reasonable grounds for such knowledge or suspicion, comes to him in the course of business in the regulated sector; and (iii) he does not make a disclosure as soon as reasonably practicable after the information comes to him.

The regulated sector is defined in the Proceeds of Crime Act 2012 (Business in the Regulated Sector and Supervisory Authorities) Order 2007. The definition is not such as to include a member of an arbitral tribunal. 

Can an arbitrator be called as a witness in court proceedings notwithstanding the parties' agreement to the contrary?

The fact that parties agree something is to be confidential does not, in itself, prevent a party from giving evidence of such matters in court or the court from ordering evidence of such matters to be disclosed. The court will only compel such disclosure if it considers it necessary for the fair disposal of the case (British Steel Corporation v Granada Television Ltd [1981] AC 1096).

No special rule applies to arbitrators - they can be called, and compelled to appear, as witnesses and give evidence in English court proceedings as to confidential matters in exactly the same way as any other witness. They can also be called as witnesses and compelled to attend court and give evidence in support of arbitration proceedings, under the power in section 44(2)(a) of the 1996 Act. If so called, it would not be open to an arbitrator to refuse to answer questions about information he received in the course of the arbitration. No privilege attaches to such information. 

It is common for parties to agree that they will not call arbitrators as witnesses. For example, the LCIA Rules provide:

“31.2 After the award has been made and all possibilities of any memorandum or additional award under Article 27 have lapsed or been exhausted, neither the LCIA (including its officers, members and employees), the LCIA Court (including its President, Vice-Presidents, Honorary Vice-Presidents and members), the Registrar (including any deputy Registrar), any arbitrator, any Emergency Arbitrator or any expert to the Arbitral Tribunal shall be under any legal obligation to make any statement to any person about any matter concerning the arbitration; nor shall any party seek to make any of these bodies or persons a witness in any legal or other proceedings arising out of the arbitration.”

Such an agreement is unlikely to be held to be effective to prevent a party calling an arbitrator as a witness. In Farm Assist v Secretary of State for Environment Food and Rural Affairs [2009] EWHC 1102 (TCC), Farm Assist sought to argue that a settlement agreement which it had entered following a mediation should be set aside as having been obtain by economic duress. DEFRA sought to call the mediator as a witness. The mediation had been conducted on a “without prejudice” basis, and so communications in the course of that mediation were privileged. No such privilege would attach to communications in an arbitration. In the Farm Assist case, the parties were prepared to waive that privilege. The mediator, however, resisted being called to give evidence, and applied to have the witness summons set aside, pointing to a term in the mediation agreement:

“13. None of the parties to the Mediation Agreement will call the Mediator as a witness, … in any litigation or arbitration in relation to the Dispute and the Mediator will not voluntarily act in any such capacity without the written agreement of all the Parties.”

Ramsey J held:

“Does that provision mean that DEFRA should not be entitled to call the Mediator as a witness in these proceedings so that the court should set aside the witness summons? In my judgment, it does not. First, I consider that the parties’ agreement not to call the Mediator as a witness “in relation to the Dispute” is limited to litigation or arbitration in relation to the underlying dispute as defined in the preamble. There the Dispute is defined as the dispute which “relates to work performed by [FAL] on behalf of [DEFRA] during the foot and mouth epidemic in 2001”. The dispute with which I am concerned is not that dispute but the dispute whether the settlement agreement was entered into under duress. In this context, I consider that the phrase “in relation to the Dispute” has been chosen to be narrow and some limited support may be derived from contrasting it with the use of the phrase “connected with the Dispute” used in paragraph 12 of the Mediation Procedure.

However, even if the wording of paragraph 13 of the Mediation Procedure did apply to this case; I do not consider that it would in itself lead to the witness summons being set aside. Rather, it would be a factor for the court to take into account in deciding whether, in the interests of justice, a mediator should be called as a witness.”

Disclosing information other than by way of a POCA authorised disclosure or if called as a witness

As noted above, disclosing information in order to avoid liability for breach of section 328 of POCA “is not to be taken to breach any restriction on the disclosure of information (however imposed)”. Similarly an arbitrator will not be in breach of any confidentiality obligation if compelled to give evidence as a witness in court proceedings or in support of another arbitration.

There are, however, situations where an arbitrator is not compelled to give evidence, and is in no danger of committing an offence under section 328 but nonetheless learns of some wrongdoing in the course of the arbitration. Can the arbitrator report that wrongdoing, or is doing so a breach of confidence?

Section 29 immunity does not apply to a breach of confidence

An arbitrator who discloses confidential information cannot claim immunity under section 29 of the 1996 Act on the grounds that he made the disclosure in good faith. Section 29 provides that the arbitrator “is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith”. Reporting something he learns in the course of the arbitration to the relevant authority is no part of the arbitrator’s function.

Statutory “whistleblower” protections do not apply to arbitrators

The Public Interest Disclosure Act 1998 (as amended by the Enterprise and Regulatory Reform Act 2013) applies to “workers” who make “protected disclosures”. The Act provides that a confidentiality agreement which purports to preclude a worker from making a protected disclosure is void, as well as giving workers who make such disclosures protection against dismissal. Protected disclosures are permitted in respect of a very wide range of wrongdoing: criminal offences, breach of any legal obligation, miscarriages of justice, danger to health and safety, damage to the environment or the deliberate concealment of information about any of these things. To enjoy the protections of the Act, the worker must reasonably believe that their disclosure is in the public interest. Arbitrators are not “workers” for the purposes of the Public Interest Disclosure Act 1998. 

Exceptions for iniquity

An arbitrator who wished to disclose confidential information could not rely either on the immunity in section 29 of the Arbitration Act 1996 or on the “whistleblower” protection which applies to “workers” under the Public Interest Disclosure Act 1998.

An arbitrator who disclosed confidential information would, instead, have to try and rely on the common law “iniquity” exception to duties of confidence. In Gartside v Outram [1857] 26 LJ Ch (NS) 113) it was held that:

“... there is no confidence as to the disclosure of an iniquity. You cannot make me the confidant of a crime or fraud, and be entitled to close up my lips upon any secret which you have the audacity to disclose to me relating to any fraudulent intention on your part.”

Iniquity is just a facet of a broader public interest defence

Lion Laboratories Limited v Evans [1984] 2 All ER 417 concerned the manufacturer of a ‘breathalyser’ (device used by the police to determine whether drivers were intoxicated whilst driving such as to have committed a crime). Two former employees of the manufacturer took with them confidential internal memoranda which cast doubt on the accuracy of the instrument. The employees passed the information to a newspaper. The manufacturer sought an injunction against the paper and the former employees to restrain publication.

The manufacturer argued that it was not alleged to have committed a “crime or fraud” or to have had any “fraudulent intention”, as in Gartside and so that there was no “iniquity”. Stephenson LJ held:

“The problem before the judge and before this court is how best to resolve, before trial, a conflict of two competing public interests. The first public interest is the preservation of the right of organisations, as of individuals, to keep secret confidential information. The courts will restrain breaches of confidence, and breaches of copyright, unless there is just cause or excuse for breaking confidence or infringing copyright. The just cause or excuse with which this case is concerned is the public interest in admittedly confidential information. There is confidential information which the public may have a right to receive and others, in particular the press, now extended to the media, may have a right and even a duty to publish, even if the information has been unlawfully obtained in flagrant breach of confidence and irrespective of the motive of the informer.

I nowhere find any authority for the proposition … that some modern form of iniquity on the part of the plaintiffs is the only thing which can be disclosed in the public interest; and I agree with the judge in rejecting the “no iniquity, no public interest” rule; and in respectfully adopting what Lord Denning M.R. said in Fraser v. Evans [1969] 1 Q.B. 349, 362, that some things are required to be disclosed in the public interest, in which case no confidence can be prayed in aid to keep them secret, and “[iniquity] is merely an instance of just cause or excuse for breaking confidence.””

The need for reasonable credibility

A party which breaches a duty of confidentiality would seem to have a defence provided that there is a sufficient public interest in the information being disclosed to outweigh the public interest in the right of people and organisations to keep confidential information secret. Such a defence arises provided that the information is reasonably credible. InAttorney General v Guardian Newspapers [1988] UKHL 6 at (at page 545) Lord Keith of Kinkel said:

“a mere allegation of iniquity is not of itself sufficient to justify disclosure in the public interest. Such an allegation will only do so if, following such investigations as are reasonably open to the recipient, and having regard to all the circumstances of the case, the allegation in question can reasonably be regarded as being a credible allegation from an apparently reliable source.”

Wrongdoing need not be on the part of the confiding party

When the information concerns wrongdoing, it makes no difference whether the wrongdoing was on the part of the person to whom the duty of confidence is owed or someone else. In Lion Laboratories Limited v Evans [1984] 2 All ER 417, Griffiths LJ said:

“I can see no sensible reason why this defence should be limited to cases in which there has been a wrongdoing on the part of the Plaintiffs.”

An arbitrator’s duty of confidence is to the parties. But the arbitrator might obtain credible evidence of wrongdoing by a party, a witness, a lawyer or someone else entirely. An arbitrator who discloses such information might, in theory, enjoy a public interest defence. Provided, of course, that the public interest in the disclosure of the information was such as to outweigh the public interest in the confidentiality of arbitral proceedings.

Confidentiality of arbitration and conflicting public interests

How is one to assess the relative ‘public interest’ in keeping arbitration proceedings confidential versus the relative public interest in the particular information in issue being disclosed?

There undoubtedly is a public interest in parties being able to have their disputes dealt with in confidence. The confidentiality and private nature of arbitration is cited as one of its main attractions, and arbitration is an important export, with foreign parties coming to England, and paying English lawyers, arbitrators and experts, to assist in resolving their disputes. It is conducive to the success of businesses and their ability to compete that they should be able to enforce obligations they are owed without risking trade secrets or sensitive commercial information which might be useful to their rivals, from becoming public. 

It is also important to recognise that disputes will tend to arise only when something has gone wrong. In seeking to apportion blame, individual employees and managers on both sides may be heavily criticised, all sorts of accusations may be made, and embarrassing failures may come to light. These might be the kind of things which some members of the public would find interesting, but it could not be said that there was a public interest in them being made public, sufficient to override the public interest in preserving the confidentiality of arbitration.

At the other end of a spectrum, there is evidence of a past, intended or ongoing crime. There is no direct authority on the point, but it seems very likely indeed that an arbitrator who receives credible evidence of something which would amount to a crime as a matter of English law may report it to the police without thereby committing an actionable breach of their duty of confidentiality. It is hard to imagine that a court would grant the criminal in such a case an injunction to prevent the arbitrator reporting the crime, or that the criminal could recover damages for such a breach of confidence after the fact.

But arbitrators may also receive information about:

  • conduct which occurred outside England, and which English law does not deem a crime unless it occurs in England;
  • conduct which constituted a crime in the place it was committed, but would not have constituted a crime if it had occurred in England.

In those cases (particularly the second) the position is less clear. The arbitrator who reports such information has committed a breach of confidence, unless there was a sufficient public interest in the information being disclosed. As a matter of English law, the conduct which has been disclosed is not sufficiently contrary to the public interest to amount to a crime in England.

At the same time, it is necessary to recognise that a public interest defence to a breach of confidentiality has been recognised in respect of matters which fall short of criminality. Re A Company’s Application [1989] 3 WLR 265 concerned a company which provided financial advice and managed investments for its clients. Its business was subject to regulation by FIMBRA (a predecessor of the Financial Conduct Authority, and whose authority to make regulations and impose sanctions for the breach of those regulations derived from statute). The company sought an interim injunction to prevent an employee disclosing confidential information to FIMBRA and to the Inland Revenue. The injunction was refused. With respect to FIMBRA it was said that:

“I doubt whether an employee of a financial services company such as the plaintiff owes a duty of confidence which extends to an obligation not to disclose information to the regulatory authority F.I.M.B.R.A.”

This would seem to suggest that the iniquity exception extends beyond criminal offences to include breaches of rules imposed by a regulator whose power is derived from statute. All sorts of industries and professions are subject to such regulation, with regulators able to impose fines or suspend licences for failures to comply with the rules they propagate. Obviously parties operating in the financial services industries will be subject to such regulation, but so will gas, water and power companies, medical professionals, accountants, pharmacists and - of course - the lawyers who represent such people in arbitrations.

Suppose that, in the course of an arbitration, a solicitor instructed by a party appeared to have committed some breach of the rules imposed by the SRA, or that a barrister appeared to have committed a breach of the rules imposed by the Bar Standards Board. It is at least arguable that the iniquity exception would apply, and that an arbitrator who reported such conduct would not be in breach of any duty of confidence.

In Re A Company’s Application, it was said with respect to the threatened disclosure to the Inland Revenue:

“if what is disclosed to the Inland Revenue relates to fiscal matters that are the concern of the Inland Revenue, I find it difficult to accept that the disclosure would be in breach of a duty of confidentiality.” 

A fraud on the revenue, of course, is a crime and so falls within the iniquity exception. ButRe A Company’s application suggests that the iniquity exception extends beyond actual criminality - the deliberate evasion of tax - to cover “fiscal matters that are the concern of the Inland Revenue”. That would potentially include matters falling short of deliberate tax evasion, such as the accidental misreporting of earnings or failure to disclose a (lawful) tax avoidance scheme.

The iniquity exception has also succeeded in cases where what has been disclosed falls short of a crime or regulatory breach. For example, there was held to be no duty to keep confidential the fact that someone had acted so as to mislead the public in Initial Services Limited v Putterill [1968] 1 QB 396, and Church of Scientology of California v Calthman[1973] RPC 635). There was no confidence in the fact that there was a danger to public health in X v Y [1988] All ER 648.

Conclusion

Whenever an arbitrator knows or suspects that an arbitration is a sham, the safest course is to decline to issue an award and to resign. In such circumstances the arbitrator is free to report the matter to the NCA or the police, but is under no criminal liability if he fails to do so. 

Where an arbitration is a sham and an award is sought as the pretext for transferring criminal funds, an arbitrator could instead make an authorised disclosure to the NCA seeking consent to issue the award. If “the appropriate consent” is provided, or is deemed to have been provided, the arbitrator may issue the award.

Where an arbitration is a sham and an award is being sought as an instrument of a fraud, the arbitrator’s only option is to refuse to issue an award and to resign. Making an authorised disclosure to the NCA and obtaining consent would not protect the arbitrator from accessory liability for fraud.

Where an arbitrator in an English seated arbitration whose duty of confidentiality to the parties arises under the law of England receives credible information in the course of an arbitration that a party, witness, lawyer or any other person has committed, is committing or intends to commit a crime contrary to English law, he may report that matter to the police without committing any actionable breach of his duty of confidence. He is under no legal obligation to make such report.

Where such an arbitrator receives credible information in the course of an arbitration as to other wrongdoing, he may disclose that matter provided there is a sufficient public interest in his doing so.