Marc J. Goldstein Arbitrator & Mediator NYC
October 31, 2010

Confidentiality of Settlement Communications in the Arbitral Context: Thoughts Motivated by a New UK Decision

The decision earlier this week of the UK Supreme Court, that facts disclosed in confidential settlement discussions are admissible to interpret the settlement agreement achieved (Oceanbulk Shipping & Trading SA v. TMT Asia Ltd. & Ors, [2010] UKSC 44 (27 October 2010)), may contribute in a useful way to current discussions about ethical rules of conduct for counsel in international arbitrations.

The decision is useful to the debate over arbitration counsel ethics, because it re-focuses our attention on the reasons for what is known in the UK as the “without prejudice” rule. That rule, as the decision reminds us, is mainly a rule of public policy that encourages settlement of disputes by promoting candor in negotiation. It is secondly a rule of contract law, that an agreement between litigants to hold discussions confidentially is generally as deserving of enforcement as other contracts (though this is closely related to the public policy rationale, which provides the justification for enforcing the contract through an exclusionary rule of evidence rather than merely a claim for damages).

The rule becomes freighted with ethical overtones, because counsel is invariably responsible for the decision to disclose elements of the “without prejudice” discussion in furtherance of a litigation objective, and is usually responsible for the making of the “without prejudice” agreement if not also for the ensuing discussions. When counsel seeks to use information obtained in a “without prejudice” discussion, opposing counsel will issue sanctimonious condemnations of the behavior, often seeking some sanction.

When this happens in an international arbitration what is the arbitrator to do?

As an initial matter, a quest for the applicable law may be fruitless. The relevant rules are likely to be part of the law of evidence or civil procedure in the respective jurisdictions of the disputants. These rules do not apply unless the parties have agreed to them specifically. Arbitration rules of procedure do not ordinarily regulate the matter.  Complicating matters, it is debatable whether the without prejudice rule is a rule of international public policy that warrants vigilant protection from the international arbitrator. The public policy element of the rule is essentially a domestic objective to reduce the burdens that private disputes place on public courts. So if the parties have no agreement on confidentiality, the arbitrator is hard pressed to regulate.

But a without prejudice agreement between the parties, directly or through counsel, providing for the confidentiality of a settlement discussion or any other discussion among the parties or counsel, is properly to be viewed by the arbitrator as a rule of procedure governing the arbitration that she is bound to enforce. Further, when viewed as a rule of procedure, and not merely as a contract, it is quite arguable that the arbitrator has less discretion than a judge might have to give effect to many of the numerous exceptions to the UK version of the without  prejudice rule identified by the UK Supreme Court. Except for non-enforcement that might be said to result from international public policy (e.g. to permit disclosure of actual or threatened criminal conduct), the arbitrator may find little room to interpret the rule adopted by the parties to permit, for example, the disclosure permitted in the UK decision of facts pertinent to interpretation of a settlement agreement.  

Still, there exists the sense at least among common law lawyers that there is something quasi-ethical about respecting an agreement made on the confidentiality of communications between the disputants during the course of the arbitration.

If the arbitrator can establish that there is a shared expectation in this regard, the inclusion of a without prejudice rule in the initial procedural order may save controversy later on. As the debate over codifying ethical rules for arbitration counsel advances, we may expect to see this course being adopted by tribunals more frequently.


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