Associated Electric & Gas Insurance Services Ltd v European Reinsurance Co of Zurich

[2003] UKPC 11

What happens and what is decided in arbitration is confidential

Facts

Both parties were insurance companies who had entered into a reinsurance agreement containing an arbitration clause. Two separate disputes between the two parties were referred to arbitration under this clause. They were not held at the same time, and in the second arbitration the defendant attempted to rely on the decision in the first arbitration. The claimant obtained an injunction restraining any mention of the first decision, relying on the express confidentiality clause.

Issues

Whether the injunction should be renewed, restraining any reference to the first arbitration decision in the course of the second arbitration.

Decision

The Privy Council held that notwithstanding the express confidentiality clause there were other factors that were to be considered. Where, as here, the dispute (i) concerned liability insurances, (ii) had been referred to arbitration in order to determine disputes between the parties and (iii) both arbitrations were governed by the law of Bermuda (which in turn was governed by the UNCITRAL Model Law on International Commercial Arbitrations 1985, containing a duty to perform any award made and recognise and respect the rights it conferred), then the confidentiality clause could not be upheld through use of injunction. The appeal was dismissed and the injunction discharged.

Comment

The key passages in the decision on this point were these:

It will be appreciated that, if the prohibition in the first paragraph of the confidentiality agreement that any disclosure of the arbitration result to any individual or entity was to be given an unrestricted construction, it would mean that any award would be unenforceable. The result of the arbitration is embodied in the award or awards of the arbitrator. If the winner is precluded from referring to the award, he cannot enforce it whether as a declaration of his rights or as a monetary award. This would be fundamentally inconsistent with and frustrate the purpose of the arbitration.

Mr Stephen Moriarty QC, who appeared for the appellants, Aegis, accepted in argument that he could not as a matter of the construction of the clause go that far. He accepted that the clause would not stop a party from applying to a court for the enforcement of the award. But, he said, that was not the case here. Reliance upon an issue estoppel was not the enforcement of the award; showing the award to arbitrators in a separate and later arbitration was not the same as showing it to a court in legal proceedings to which it was germane.

For the purpose of evaluating this argument, one must assume that the plea of issue estoppel is prima facie sound - that the issue was decided in the previous award as part of the necessary reasoning of the arbitrators in determining the dispute submitted to them. On this hypothesis, the decision was a decision which decided as between Aegis and European Re what was the correct construction of Article X of the reinsurance agreement. It established what were the rights of the parties under that Article. Ex hypothesi, Aegis are seeking in the second arbitration to dispute that the parties have those rights, contrary to the earlier award. How can European Re enforce the earlier decision? The answer is by pleading an issue estoppel.

Issue estoppel applies to arbitration as it does to litigation. The parties having chosen the tribunal to determine the disputes between them as to their legal rights and duties are bound by the determination by that tribunal of any issue which is relevant to the decision of any dispute which is referred to that tribunal." (per Diplock LJ [1966] 1 QB 630 at 643, Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1QB 630, 643 per Diplock LJ: see also Lord Denning MR in the same case at p640) European Re's case in the Rowe arbitration is that the decision of the Boyd arbitrators in the Boyd arbitration was relevant to, indeed, decisive of the Boyd Arbitrators' determination of the dispute referred to them. Thus, they say, it gave rise to an issue estoppel which they can rely upon in the Rowe arbitration; for Aegis to raise again the same dispute in the Rowe arbitration amounts to a failure by Aegis to recognise and perform the earlier award and therefore does not infringe the stipulations of the confidentiality agreement properly construed.

It is logical that to advance a case of issue estoppel, as between one arbitration and another, it is necessary to refer to what were the issues and what was argued and decided in the first arbitration. This case therefore appears to be a justified exception to the normal and well-recognised position namely, that what happens and what is decided in an arbitration is confidential.