English High Court orders disclosure of arbitration documents by agent to principal

In its recent judgment AMEC Foster Wheeler Group Limited v Morgan Sindall Professional Services Limited & Ors [2015] EWHC 2012 (TCC) (available here), the English High Court (the Court) ordered that arbitration documents be disclosed by a party conducting arbitration to a party with a financial interest and practical involvement in the dispute.

The arbitration arose in relation to construction works at a naval base. The Secretary of State for Defence (SSD) had engaged a contractor (TES) to carry out works. Part of those works was subcontracted by TES to the claimant (AMEC). AMEC then sold its business to the defendants, who were assigned AMEC's rights and agreed to carry out AMEC's obligations under the relevant subcontract.

Disputes under the main contract and the subcontract arose, and arbitral proceedings between SSD and TES commenced. Under a name borrowing agreement between TES and AMEC (i.e. an agreement under which a party agrees to pursue or defend a legal claim in the name of another), AMEC, agreed to conduct the arbitration between TES and SSD on behalf of TES. AMEC and the defendants then agreed that the defendants would conduct the arbitration as AMEC's agents.

The defendants conducted the arbitration without any involvement from AMEC. When AMEC sought copies of the arbitration documents, the defendants refused to provide them. The claimant brought proceedings before the Court for orders that the documents be disclosed.

The Court ordered that the documents be disclosed on the basis that they were held by the defendants as agent for AMEC. In reaching this decision, the Court rejected the defendants' argument that disclosure should be refused on the basis that the arbitration documents were confidential.

The Court's decision focussed largely on the relationship between the parties and little attention was given to the issue of confidentiality in arbitration proceedings. This in itself makes the decision noteworthy: the Court made clear that the legal obligation to provide the documents to AMEC (by virtue of the relationship between principal and agent) effectively 'trumped' any question of a duty of confidentiality owed to a third party (in this case, the SSD), in arbitration proceedings. Whilst the circumstances of this case were unusual, the decision may have broader application where there is an arbitration between an agent (whether disclosed or undisclosed) and a third party.

Background

In 2003, the SSD engaged TES to carry out design and construction works at HMNB Clyde. TES subcontracted the works to AMEC.

In 2007, AMEC sold its business to the defendants. AMEC was unable to novate the subcontract to the defendants, so the defendants took an assignment of the rights under the subcontract and agreed to discharge subcontract as agent for AMEC. The defendants also agreed to indemnify AMEC in respect of all liabilities under the subcontract.

In November 2009, the SSD commenced arbitration against TES. This led AMEC and defendant to enter an agreement under which:

• AMEC would enter a name borrowing agreement with TES, under which AMEC would conduct and defend in the name of TES certain arbitration proceedings between the SSD and TES; and
• the defendants would act as AMEC's agent in conducting the arbitration proceedings under the name borrowing agreement.

In line with this agreement, the defendants conducted the arbitral proceedings between SSD and TES with no involvement from AMEC.

In late 2014, AMEC became concerned that it might be at risk under the terms of the subcontract, and had a direct financial interest in the outcome of the arbitration. AMEC wrote to the defendants seeking copies of the following arbitration documents:

• statements of case;
• factual witness statements;
• expert reports; and
• payment certificates

The defendants refused to provide the documents, and AMEC brought an application before the Court for production of the documents.

Court's decision

The Court ordered the production of the documents. The reasons for the decision included:

• AMEC had a financial interest in the outcome of the arbitration;
• the defendants were acting as AMEC's agent in the arbitration; and
• the production of the documents was not barred by confidentiality

Each of these aspects of the Court's decision is briefly discussed below.

Financial interest

The Court observed that the defendants, using the name of TES, were involved in on going arbitral proceedings with the SSD.

The Court noted that it was common ground that the arbitration may result in liabilities which the defendants would be unable to meet, and which may therefore render AMEC liable for the shortfall. It followed that AMEC had a financial interest in the outcome of the arbitration.

Agency

The Court considered that it was clear that the defendants were acting as AMEC's agent in the arbitral proceedings.

It noted the general rule that a principal is entitled to require production of by the agent of documents relating to the affairs of the principal. Accordingly, the defendants were obliged to provide the arbitration documents sought by AMEC on demand.

Confidentiality

The Court rejected the defendants' argument that production of the documents should be refused on the basis of confidentiality. There were several reasons.

First, the SSD had originally made an application to intervene in the Court proceeding so that it could address any issue of confidentiality. It had then withdrawn its application because the defendants would not allow it to see the underlying agreements between AMEC and the defendants. The defendants could not claim to be protecting the SSD's interest in confidentiality when they were unwilling to cooperate so as to allow the SSD to appear.

Second, there was nothing in the authorities which provides that confidentiality 'trumps' the right of a principal to demand that its agent produce documents relating to the principal's affairs.

Third, the Court regarded the question of confidentiality as a 'smokescreen' raised by the defendants to try to avoid producing the documents. The Court considered that it was AMEC which was at risk of meeting any shortfall arising from the defendants' impecuniosity and the documents were as confidential to AMEC as they were to the defendants.

Comment

This case involved an unusual situation but it raises issues which are of broader interest, particularly on issues of confidentiality and agency in arbitration. The decision is noteworthy in that neither the parties nor the Court expressly addressed the issue of confidentiality in arbitration in any detail (although the issue was clearly countenanced by the SSD's application to intervene). An important feature of English arbitration is that, as a general rule, arbitration documents are confidential to the parties to the arbitral proceeding. It is perhaps surprising that the Court did not clearly explain why the general rule of confidentiality was not observed in this case.

Although the case turned on the fact that the defendants had agreed to conduct the arbitration on AMEC's behalf as its agent, the decision may have wider implications for all arbitrations between an agent and a third party. In this case, it is not clear that the SSD would have objected to the disclosure on the appropriate terms. However, in a case where the question of whether a party was acting as agent or on its own behalf is disputed in the arbitration, the third party may object to the disclosure. This may lead to the issue of whether a party was acting as an agent or on its own behalf being determined by a court, notwithstanding the existence of an arbitration agreement.

For further information, please contact Craig Tevendale, Partner, Aaron McDonald, Associate or your usual Herbert Smith Freehills contact.