A recent decision of the Outer House of the Court of Session has confirmed that although documents produced in relation to arbitration in Scotland are generally regarded to be confidential, their disclosure can be ordered where the public interest and/or the interests of justice override the parties’ interest in maintaining confidentiality. The issue arose in Gray Construction Limited v Harley Haddow LLP  CSOH 92 where the court was asked to consider the balance to be struck between these competing interests.
The case related to a claim for damages for alleged breach of contract and negligence, in which Gray Construction (“GC”), sought recovery from Harley Haddow (“HH”), of amounts incurred by GC in connection with an arbitration involving a third party, including recovery of the settlement sum GC had paid. In pursuing its claim against HH, GC needed to establish that its settlement of the arbitration was objectively reasonable. GC did not intend disclosing confidential documents, but instead proposed relying on affidavit evidence from the lawyer who had advised it on the arbitration and the settlement. However, HH argued that in order to consider the position properly, it required access to confidential documents showing the factual and legal basis of the third party claim and the circumstances of the settlement agreement. It also argued that GC had waived confidentiality by making averments in its written pleadings about the arbitration and settlement.
Arbitration is generally considered to be a confidential procedure and parties often choose to deal with their disputes by way of arbitration for that reason. However, there is little case law in Scotland regarding the obligation of confidentiality in relation to arbitration. Both GC and HH accepted that confidentiality extended to all documents produced or created by the parties in connection with the arbitration, and the court had no difficulty in implying an obligation of confidentiality into the arbitration agreement.
However, the court confirmed that an exception to the obligation of confidentiality may arise where a party to an arbitration needs to rely on confidential information to enforce an award, to protect legitimate interests or where disclosure is in the public interest. When deciding whether or not it is appropriate to override an obligation of confidentiality the courts must balance this obligation with the interests of justice. Lord Hodge found that “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”.
Therefore, the test to be considered is - how can the court achieve a fair disposal of the action? In this instance, it was necessary for HH to be given access to the documents to enable it to prepare its case – the alternative offered by GC would not have allowed HH access to the detail of the arbitration and settlement until cross-examining GC’s lawyer at proof. Having decided the primary issue on that basis, the court did not consider it necessary to consider in detail the alternative argument that GC had waived confidentiality by referring to the issues raised in arbitration and the terms of settlement in the court pleadings. It commented, however, that such actions by GC would not in any event constitute a waiver of confidentiality by the other party to the arbitration.
It should be noted that the arbitration in this case predated the coming into force of the Scottish Arbitration Rules (“SAR”) which were introduced by the Arbitration (Scotland) Act 2010. SAR Rule 26 (a default rule) provides for confidentiality in relation to arbitration. The Court of Session has shown in the last year that it is keen to support the resolution of disputes by way of arbitration in Scotland - for example, as a matter of practice it will not normally publish information which might identify parties to arbitration where court rulings are sought in connection with that arbitration. This latest decision demonstrates the limits to the default rule and it will be interesting to see how the Court’s approach to arbitration continues to develop following the introduction of the SAR.