As described by the Supreme Court of Canada, privilege is a fundamental principle for the administration of justice.1 Despite its importance, though, there is no overarching rule in the context of legal discovery detailing each and every type of document a party may refuse to produce. This is particularly true for confidential dispute resolution proceedings and their respective pleadings.
In light of this ambiguity, the Federal Court's decision in SOS Marine Inc. v M/V Gentle Seas, 2024 FC 1042, offers greater clarity as to whether the disclosure of previous arbitration proceedings conflicts with the principles of privilege. Below, we review the Federal Court's decision and highlight its takeaways regarding the standard of review for questions of relevance and whether litigation privilege extends to prior arbitration proceedings.
Brief Factual Background
Stem Shipping Co. ("Stem Shipping") the operators of the vessel M/V Gentle Seas, retained SOS Marine Inc ("SOS"), a maritime service company, to clean the ship's cargo holds. The agreement provided that SOS would perform the work at a cost of $90,000.00 CAD.
However, due to alleged defects in the ship's crane, SOS encountered delays and subsequently submitted a revised quote to account for the additional work needed to discharge the remaining cargo and to clean the remaining holds. Although the revised quote was provided to Stem Shipping, it refused to pay for any costs exceeding the initial $90,000.00 quote once the work was completed. This led SOS to commence an action against M/V Gentle Seas, its owners, and all others interested in the ship ("M/V"), including Stem Shipping.
During examination for discovery, SOS requested a copy of previous arbitration proceedings between M/V and its charterers, who were not parties to the current litigation. Although M/V undertook to provide these documents, it later raised objections. In response, SOS filed a motion to compel production.
The Case Management Judge ordered M/V to respond to the questions and fulfill the undertakings (finding that its objections in this regard were improper), emphasizing that the requested information was relevant and that any confidentiality concerns could be addressed through the Federal Court Rules. Of particular relevance, the Case Management Judge ordered that, "To the extent that the arbitration proceedings... contain claims concerning the hold cleaning services and/or liability for the delays incurred in relation thereto, all of which are disputed issues of fact in this proceeding, the request is relevant and the Defendants shall be compelled to produce a copy of such proceedings."
M/V subsequently brought a motion under Rule 51 of the Federal Court Rules to appeal the Case Management Judge's order to maintain their objection to the undertaking. This motion was comprised of two arguments. First, as a preliminary matter, M/V contended that the standard of review should be correctness, thus negating the use of Housen's 'palpable and overriding error' test. In the alternative, M/V further claimed a palpable and overriding error in relation to the ordering of disclosure of the arbitration proceedings, which were private in nature. M/V argued that this violated the implied undertaking rule, and that the arbitration proceedings were irrelevant to the contractual dispute between SOS and M/V.
Decision of the Federal Court
Accordingly, the Court considered two main issues:
1) What is the appropriate standard of review?
2) Did the Case Management Judge make a palpable and overriding error in ordering disclosure of the arbitration proceedings?
The standard of review is of palpable and overriding error
M/V argued that the Case Management Judge's decision to produce the arbitration proceedings should be reviewed on a standard of correctness. This argument was grounded in M/V 's contention that relevance was a question of pure law. However, the Court summarily dismissed this argument, pointing out M/V's lack of supporting authority.
Moreover, the Court clarified that, in the absence of an extricable question of law, the determination of whether a question or document is relevant constitutes a question of mixed fact and law, subject to review on the more deferential standard. Since M/V did not articulate any extricable error of law or suggest that the Case Management Judge erred in identifying the applicable test for determining relevance, the decision would be reviewed on the traditional palpable and overriding error standard.
The trial judge did not make a palpable and overriding error
M/V argued that the Case Management Judge committed a palpable and overriding error by ordering the disclosure of the arbitration proceedings, as this would violate the implied undertaking rule. M/V explained that this rule prevented a party to litigation from using information another party was compelled to provide for any purpose other than securing justice in the proceeding. M/V also asserted that litigation privilege, which arose from the implied undertaking rule, extended to private arbitrations and their associated pleadings, thereby preventing their disclosure.
The Court dismissed this argument on three bases. First, it noted that M/V failed to provide any authority to suggest that litigation privilege applied to private arbitration proceedings and their related pleadings. In fact, the Court observed that case law suggested the contrary: the confidentiality that attaches to arbitration documents did not to rise to the level of litigation privilege, and if those documents are relevant to subsequent litigation between the same or third parties, they should be disclosed in the interest of justice of court proceedings.
Second, the Court concluded that a reviewing court is only permitted to consider the submissions made before the decision maker. Accordingly, as M/V did not raise the implied undertaking rule before the Case Management Judge, the Court ruled that the Judge could not have made a palpable and overriding error by failing to account for this rule.
Finally, the Court noted that the defendants failed to include any evidence in their motion materials attesting to the confidentiality of the arbitration proceedings.
Finally, M/V further argued that the Case Management Judge erred in determining that the arbitration proceedings were relevant to its contractual dispute with SOS. The Court rejected this argument, as the arbitration proceedings between the M/V and its charterers included claims related to the hold cleaning services provided by SOS and the liability for the delays in relation thereto. Both of these issues were disputed factual matters relevant to the contractual dispute between the M/V and SOS. Therefore, the Court concluded that the Case Management Judge correctly set out and applied the applicable legal principles in determining relevance.
As a result, M/V failed to demonstrate that the Judge made a palpable or overriding error, and its motion was dismissed.
Analysis
Despite the Court's brief decision, SOS Marine provides a valuable reminder regarding the limits of confidentiality in arbitration. While arbitration agreements will regularly contain confidentiality provisions, it appears that confidentiality may not receive the same level of protection as litigation privilege, and that litigation privilege may not extend to arbitration proceedings. Although confidentiality is often touted as one of arbitration's key benefits over litigation, such confidentiality may not be without its limits. While it may be possible to obtain a confidentiality order in litigation to prevent the disclosure of arbitration materials, obtaining such an order is by no means assured of success.
On the one hand, this proposition is consistent with the open court principle (i.e. the presumption that litigation proceedings are to be open to the public, subject to limited exceptions). On the other hand, however, there is an obviously arguable case that documents prepared for the dominant purpose of dispute resolution in general (such as arbitration) should be afforded the same protection as those documents prepared for the dominant purpose of litigation (in which case litigation privilege attaches). As explained by the Supreme Court, the purpose of litigation privilege is to create a "zone of privacy" in relation to pending or apprehended litigation, and remains in effect where the litigation that gave rise to the privilege has ended, but related litigation remains pending or may reasonably be apprehended, such as the following
- separate proceedings that involve the same or related parties and arise from the same, or a related cause of action or juridical source; and
- proceedings that raise issues common to the initial action and share its essential purpose.2
Arguably, the foregoing rationale is equally applicable to arbitration (or other adversarial dispute resolution, like adjudication). While such a rationale would perhaps be less persuasive with respect to external arbitration work product (e.g. pleadings), it would appear to apply with equal force to internal work product. As a result, it would seem at least arguable that some broader form of privilege may have been applicable in SOS Marine, although the Court's reasons suggested that the request for disclosure of "proceedings" was limited to pleadings and other documents that would be public in the context of litigation. To the extent external arbitration work product and documents warrant protection from disclosure, such protection may need to come in the form of legislative intervention.
In any event, construction industry participants should be aware that documents from arbitration proceedings may be disclosed in discovery insofar as such documents are relevant to subsequent litigation involving the same or related third parties.
Finally, SOS Marine serves as a reminder for those involved in arbitration to take proactive measures in their arbitration agreements if they wish to increase their odds of preserving confidentiality. Although, the decision did not turn solely on this issue, the Court flagged as an issue the fact that M/V failed to provide evidence of the confidentiality of the arbitration in question. Accordingly, drafters should be careful to include explicit confidentiality provisions in their arbitration agreements. At the same time, objections to such disclosure must be made early and in their complete form.
Footnotes
1 Lizotte v Aviva Insurance Company of Canada, 2016 SCC 52.
2 Blank v. Canada (Minister of Justice), [2006] 2 S.C.R. 319, 2006 SCC 39 at paras 27, 33-39.
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