Latest post: 31 July 2024<\/p>\n
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Aditya Singh & Rishab Devaiah Ittira<\/strong>[1]<\/strong><\/a><\/p>\n I. Introduction<\/strong><\/p>\n Disclosure of certain documents being used in the arbitral process is integral to solicit a third-party funder (TPF). For instance, one cannot expect an investor to invest in a venture without having undertaken a comprehensive risk assessment. Furthermore, it must be noted that TPF is integral for ensuring access to justice. Its best illustration being its role in facilitating multiple claims post the 2008 and pandemic recession.<\/a> However, the countervailing factor of confidentiality of an arbitration cannot be overridden without adequate safeguards.<\/p>\n Issues of confidentiality specific to other important matters such as disclosure by arbitrators<\/a> have also been settled. However, a party seeking TPF is limited by the general common law exceptions to confidentiality in an arbitration. This paper aims to address the abovementioned lacunae. To that end, the article will, first, set the context and present the shortcomings within the existing jurisprudence, while also showing that our demand for an exception can be situated within the existing paradigm. Second, the article using English common-law jurisprudence will also show that it is tenable to construct a closed circuit between an arbitration and potential funders even at the solicitation stage.<\/p>\n II. The Need for A Specific Stipulation<\/strong><\/p>\n The first point to note is that there is no specific judicial decision or statutory rule specifically dealing with TPF as an exception to confidentiality. The general prevailing exceptions<\/a> to confidentiality, namely, parties\u2019 consent, court-orders, protection of legitimate interests, interests of justice and public interest were created at a time when the usage of TPF was rather limited in arbitration. Hence, although the basis for soliciting TPF as an exception to confidentiality may be traced from these existing exceptions, they will also be under-equipped in some respects. To elaborate further, one can contrast the development of common law jurisprudence on exceptions to confidentiality with the growth of TPF. The foundations of the prevailing exception can be traced way back to 1924 in Tournier v National Provincial.<\/em><\/a> While there were discussions on the same in cases such as Dolling Baker v Merrett<\/em><\/a>, <\/em>the court made it clear that it does not wish to delineate the precise extent of the obligation. The most detailed stipulation of exceptions to confidentiality can be found in Emmott v Wilson<\/em><\/a> which was in 2008.[2]<\/sup><\/a><\/p>\n In contrast to this, we witnessed increased usage of TPF even in litigations majorly after the 2008 economic crisis<\/a>. This was done to bring forward genuine, meritorious claims<\/a> that would otherwise have been stuck due to a lack of financing. While this was when the TPF industry gained initial traction, a major increase in funding was also seen after the Covid pandemic<\/a>. We witnessed the UKSC adjudicate on the specific question of disclosure by arbitrators as an exception to confidentiality<\/a> in 2020. Solicitation of TPF requires a similar specific focus, as like disclosure, TPF is gaining importance with its increased usage. Confidentiality and TPF need to be counterbalanced in the interests of justice, so as to benefit smaller arbitral parties with lesser access to capital.<\/p>\n A. Blurry Exceptions – Accommodating TPF Solicitation<\/u><\/strong><\/p>\n Before we delve into the analysis of general exceptions, the observations surrounding these exceptions need to be noted. Collins LJ with respect to the exceptions (specifically \u2018interests of the bank\u2019 and \u2018public interest\u2019) in Tournier<\/em><\/a>, the court delved into the meaning and limits of confidentiality in the context of the relationship between a customer and banker,which were later adopted in Emmott <\/em><\/a>recognizing that the exceptions \u201care potentially very wide<\/em>\u201d. In fact, when the above-mentioned grounds were penned down at the end, it was without any qualifications. This is despite the discussions of cases which had read them narrowly in specific facts and circumstances. What is also of the essence is the fact that the bench in Emmott<\/em><\/a> not only kept the exception of \u2018legitimate interest\u2019, it also stipulated the earlier conflated exceptions of \u2018interests of justice\u2019 and \u2018public interest\u2019 as two separate exceptions. Even the UK & Wales Law Commission noted<\/a> that the exceptions were still in the process of development and represent only the principal cases.[3]<\/a><\/p>\n To look further into the specific exception of \u2018legitimate interest\u2019, Bankes LJ in Tournier<\/em><\/a>, broadly formulated four exceptions, with one of them being \u201cwhere the interests of the bank require disclosure.\u201d Scrutton LJ restated this exception to mean disclosures that were \u201creasonable and proper for its own protection\u201d and Atkin LJ formulated the exception as those disclosures that were \u201creasonably necessary for the protection of the bank\u2019s own interests.<\/em>\u201d These banking law principles<\/a> as enumerated in <\/u>Tournier v. National Provincial and Union Bank of England<\/u><\/em><\/strong> of confidentiality were subsequently adopted by the courts as exceptions to confidentiality in arbitration.<\/p>\n However, in reference to the point on narrow construction mentioned above, it should also be noted that judicial usage<\/a> of the exception has been in contexts where disclosure was necessary to pursue a claim\/ defend oneself against a third party. The same does leave us with a note of caution.<\/p>\n In any event, the UKSC in Emmot<\/em><\/a> construed the third exception as disclosures which were reasonably necessary to protect the legitimate interests of the arbitral party. If we were to look at another operative part of Ali ShippingCorporation v Shipyard Trogir<\/a> also relied upon by the Privy Council in Associated Electric v European Reinsurance Co of Zurich<\/a> \u00a0<\/u>,[4]<\/strong><\/a> <\/em>Potter LJ stated that the general law of confidentiality cannot be mechanically applied to awards as there are various non-legal and legal interests attached to it. Therefore, it can be argued that disclosure of certain arbitration-related material for solicitation of potential TPFs should be held in the same stead as it is being done for the enforcement of a legal right. This is because TPF protects the legitimate interest\/right of the arbitral party to participate in the arbitral proceedings. The same has been amply recognised in common law jurisprudence with cases such as\u00a0 Excalibur Ventures v Texas Keystone<\/em><\/a>.<\/a> In this case, the court highlighted that litigation funding is an accepted and judicially sanctioned activity that promotes the administration of justice. The arbitration agreement confers the legal right to the party to take recourse to arbitration, a right that will be rendered ineffective if not for the assistance of the third-party funder. The funder must have access to certain documents relating to the arbitration in order to conduct necessary due diligence. Therefore, it is clear that disclosures to third-party funders in arbitration cases are reasonably necessary to protect the legitimate interests of the arbitral party.<\/p>\n One could also consider the \u2018interests of justice\u2019 exception, which stemmed from the proposition<\/a> that confidentiality should not prevent \u201cfair resolution and proceedings\u201d, i.e., it should not be an impediment to true evidence reaching the court. Nevertheless, the wide nature of these exceptions coupled with the English jurisprudence classifying TPF as an essential tool to ensure access to justice makes the accommodation of it tenable within the exception. This is to say that certain prior jurisprudential basis to accommodate the exception exists.<\/p>\n This however does not allay the concern that while these exceptions have a broad ambit, the lack of certainty and uniform treatment cannot be disregarded because of narrow constructions that have prevailed before. The courts have accorded very specific meanings to the aforementioned exceptions thus creating plenty of room for uncertainty. This must also be seen with the issue of which specific exception would this be placed under. The classification is of the essence because of the different specific constructions of different exceptions as shown above. Apart from the above apprehension, the legal paradigm governing TPFs also requires other aspects such as imposition of duties of confidentiality on potential TPFs and an obligation upon the arbitrator to disclose any connection between them and the TPF<\/a>.[5]<\/sup><\/a> Therefore an express stipulation of TPF as an exception does not just bring about certainty at the starting point. It will also facilitate plugging the other holes<\/a> that may hamper the various safeguards of an arbitration. This includes but is not limited to impartiality, confidentiality and access among others.<\/p>\n B. Privilege – Locating Safeguards<\/u><\/strong><\/p>\n The authors do not contest that confidentiality is integral to arbitration. We have also seen that confidentiality also becomes redundant once there is already a leak. <\/a>The paradigm is thus better where there is a well-founded exception with mechanisms to confine that exception. While potential TPFs may not be bound by the arbitration agreement, there exist privileges constructed in common law to bind them as a starting point.<\/p>\n Privileged material retains its privileged status when shared with a limited number of parties<\/a> with the intention to retain such privilege. This was held in Gotha City v Sotheby\u2019s<\/em><\/a> and affirmed in a line of cases extending to the\u00a0 State of Qatar v Banque Havilland SA<\/em><\/a>.\u00a0 <\/em>In State of Qatar<\/em><\/a>, the court observes that \u201cabsence of an express non-waiver agreement \u2026 is not necessarily fatal.\u201d The determination of a limited waiver requires reference to the circumstances of the case, whether express or implied. In Property Alliance Group v Royal Bank of Scotland<\/em><\/a>, the court held that RBS was entitled to claim privilege over documents that were provided to regulators on a limited basis, despite the legal duty on regulators to \u201ceven publish the documents pursuant to regulatory powers\u201d. This is analogous to agreements between TPFs and arbitral parties<\/a>as there exists an overarching agreement of confidentiality (either express or implied) between them. Hence, even though there is disclosure of documents to a potential TPF, these communications are privileged.<\/p>\n The above-mentioned line of cases enables imposition of the duty of confidentiality on potential TPFs. What could, however, make the position clearer, especially in the context of TPF is an express code along the lines of the code of conduct<\/a> made by the UK & Wales Association of Litigation Funders.<\/p>\n III. Conclusion<\/strong><\/p>\n In conclusion, this article highlights the pressing need for a nuanced legal framework addressing the solicitation of TPFs as an exception to confidentiality in arbitration. The same is done by tracing the lag between the development of exceptions to confidentiality and juxtaposing them against the prominence of TPF. While we opine that the framework is incomplete and brings about uncertainties, a basis for this exception exists within it. Moreover, \u201climited waiver privilege\u201d is explored to bind potential TPFs by privileges constructed in common law. This comprehensive approach is crucial for ensuring equitable, just, and effective legal recourse in an era witnessing the transformative impact of TPF in arbitration.<\/p>\n One possible route of reform could be the addition of a separate exception for the disclosure of confidential information for the solicitation of funders by arbitral parties, to the prevailing common law exceptions. However, detailed guidelines on privilege extending to contacted funders, empowerment of the courts\/tribunals to scrutinise the list of documents being disclosed, etc will have to be framed to complete the circuit.<\/p>\n \u00a0<\/strong><\/p>\n [1]<\/a> Aditya & Rishab are BA.LL.B.(Hons) students at the National Law School of India University, Bengaluru.<\/p>\n [2]<\/sup><\/a> Other cases such as Ali Shipping Corporation v Shipyard Trogir [1999] 1 WLR 314 <\/em>and Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich [2000] UKPC 11 <\/em>which fall in between Dolling Baker<\/em> and Emmot<\/em> are also of importance and will be analysed below.<\/p>\n [3]<\/a> U.K. & Wales Law Commission, \u2018Review of the Arbitration Act 1996: Final report and Bill\u2019, (2023) Law Comm No 413 [2.24].<\/p>\n [4]<\/a> Associated Electric v European Reinsurance Co of Zurich,<\/em> [2003] UKPC 11 [19, 20].<\/p>\n [5]<\/sup><\/a> Jonas von Goeler, Third-Party Funding in International Arbitration and Its Impact on Procedure<\/em> (Kluwer Law International 2016) 173-175.<\/p>\n","protected":false},"excerpt":{"rendered":" Latest post: 31 July 2024 Addressing the Tug-of-War Between Confidentiality and Third-Party Funding in English Arbitration Aditya Singh & Rishab Devaiah Ittira[1] I. Introduction Disclosure of certain documents being used in the arbitral process is integral to solicit a third-party funder (TPF). 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