Choosing commercial arbitration over conventional litigation
cannot guarantee confidentiality of the process, as a recent
decision of the BC Supreme Court shows. The prospect of keeping a
commercial dispute confidential has long been recognized as one of
the main advantages of arbitration over litigation in the courts,
along with the speed of the process, the ability to choose
one's decision-maker, and easier enforcement of awards
internationally. Confidentiality is certainly enhanced by resolving
a dispute through arbitration, and in most cases that
confidentiality will be maintained. However, businesses should be
aware that the possibility that an arbitration award will be
appealed to a judge of the court carries with it the risk that
confidentiality may be eroded.
McHenry Software Inc v. ARAS 360
Incorporated concerned a dispute between two software
developers, McHenry and ARAS, over their contract to integrate and
market their respective proprietary software. When the relationship
broke down, the parties commenced arbitration proceedings in
Vancouver in accordance with the arbitration clause in the
contract. The arbitrator ordered the parties to enter into a
confidentiality agreement for the purposes of the proceeding and
the matter was subsequently heard in November 2013. Eventually,
both parties appealed the arbitration decision. McHenry applied to
the court for sealing and confidentiality orders over the two court
files to seal the arbitration award (i.e., the written decision of
the arbitrator) to preserve the privacy of the dispute.
McHenry submitted that the arbitration award contained
commercially sensitive information as well as various details of
the company's past business dealings which, it claimed, cast
the company in a bad light. McHenry argued that public disclosure
of this information would impede the company's ability to find
new partners and commercialize its software.
Mr. Justice Ehrcke considered whether the circumstances merited
a discretionary sealing order, applying the Supreme Court of
Canada's test in Sierra Club of Canada v. Canada (Minister of
Finance) which requires an applicant to overcome a strong
presumption in favour of open court proceedings. The judge agreed
that a sealing order should only be granted when necessary "to
prevent a serious risk to an important interest, including a
commercial interest, in the context of litigation because
reasonably alternative measures will not prevent the risk".
Even if there are compelling reasons, the applicant also needs to
show that the salutary effects resulting from the confidentiality
order outweigh the overarching public interest in open and
accessible court proceedings as well as in the right to free
Ultimately, Mr. Justice Ehrcke denied the application on the
basis that there was no real and substantial risk to an important
commercial interest. Further, he held that there is no general
principle that the confidentiality of arbitration proceedings
carries over to court proceedings when the arbitration is appealed.
In such cases, any expectations of privacy in arbitration will give
way to considerations of public policy in open court proceedings
and free expression.
The point to take away from this case is that commercial
arbitration, while generally a private and confidential process,
cannot guarantee complete confidentiality in all cases. An appeal
of an arbitration award to the court is always a possibility,
notwithstanding the Supreme Court of Canada's recent decision
in Sattva Capital Corporation v. Creston Moly
Corporation which significantly narrowed the scope for
appeal (see Craig Ferris' recent
blog post on this case). The confidentiality that attaches to
arbitration does not automatically carry over to the court, and the
court will apply a very rigorous and high standard before closing
its process to the public.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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