SOS Marine Inc., a Québec-based maritime service company, was contracted by M/V Gentle Seas through its agent Laden Maritime Inc. to clean the Gentle Seas’ cargo holds.
The Gentle Seas is a 200-metre bulk carrier sailing under the flag of Liberia.
Issues arose related to the operation of the ship’s crane for unloading the cargo in order to have access to the holds, a responsibility assigned to the ship’s charterers. The delays caused SOS to submit a new quote reflecting additional work needed to gain access to the holds. However, Gentle Seas refused to pay.
SOS responded by “arresting” the ship, a process that prevents a ship from leaving port.
As it turns out, Gentle Seas had an unrelated dispute with the ship’s charterers which had gone before arbitration. When the matter between SOS and Gentle Seas went before a case management judge, she ruled the arbitration was relevant to the SOS matter, and mandated that Gentle Sea respond to questions and undertakings during discovery and to also produce the earlier arbitration’s pleadings.
However, Gentle Seas objected to this and appealed to federal court.
In its appeal motion, Gentle Seas supported their refusal to disclose the arbitration proceedings between themselves and the ship’s charterers on the basis SOS’s initial quote contained the words “no cure no pay.” Therefore, SOS must bear the responsibility of all delays and extra costs.
SOS Marine argued the proceedings between the defendants and the charterers were inextricably intertwined with the facts related to their dispute before the appeal court and should be disclosed.
Omair Jafrani, an associate with McCarthy Tétrault LLP, writes Gentle Seas argued, “arbitrations are private by nature and that disclosing information from the arbitration would encroach on the implied undertaking rule.”
However, this argument was never made by Gentle Seas during the case management hearing. Furthermore, in their appeal of the case management judge’s mandate, they failed to produce any material in support of their confidentiality claim.
The court dismissed the appeal by Gentle Seas, finding that, “the defendants (Gentle Seas) have not substantiated any palpable and overriding error in the order.”
“Confidentiality attached to arbitration documents does not rise to the level of privilege,” ruled the Honourable Madam Justice Tsimberis. “If documents are relevant to subsequent litigation between the same or third parties, they should be disclosed in the interest of justice in court proceedings.”
Jim McLandress, an arbitrator/mediator with Blairgowrie Conflict Management in Winnipeg, writes “privacy has its limits,” and matters that are considered confidential are not necessarily automatically protected by privilege. Instead, parties might be better served by dealing with it directly in their arbitration agreement.
Jafrani agrees, pointing out possible consideration of, “a carefully crafted arbitration agreement or the use of thoughtfully designed institutional rules that include confidentiality provisions. Although these arrangements remain subject to judicial override, parties who wish to maintain confidentiality must proactively implement measures — whether through institutional rules or their arbitration agreement — to ensure it is preserved.”
McLandress writes although confidentiality is a benefit of arbitration, institutions addressing confidentiality might each approach it in a different manner. For example, arbitrators may have confidentiality extended to them whereas the parties may not.
“Some concern only documents,” he writes, “and some create a broad confidentiality applicable to all aspects of the arbitration.”
And it can get tricky when commercially or financially sensitive material is disclosed during arbitration hearings.
“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,” write Bruce Reynolds, partner with Singleton Urquhart Reynolds Vogel LLP, associate Nicholas Reynolds and student Eric Lee.
“This proposition is consistent with the open court principle,” they write. “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.”
John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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