Hong Kong decision illustrates important exception to arbitral confidentiality

The Hong Kong Court of First Instance has refused to grant a confidentiality order preventing the public disclosure of information relating to an HKIAC arbitration in parallel litigation proceedings against a related party of the arbitration respondent (Beijing Songxianghu Architectural Decoration Engineering Co., Ltd v. Kitty Kam [2024] HKCFI 1657).

The decision (which adopts the same approach as English authority) provides an important reminder that arbitral confidentiality is not absolute, even where strong express statutory protections apply (as is the case in Hong Kong).  It also provides a useful practical illustration of the exception to arbitral confidentiality where a party discloses information for the purpose of protecting or pursuing a legal right or interest in legal proceedings.

Background

The claimant company brought Hong Kong court proceedings against an individual for fraud, dishonest assistance and conspiracy to injure by unlawful means.  Shortly afterwards, the claimant commenced HKIAC arbitration against a related entity of the individual defendant in the court proceedings.  The court proceedings and the arbitration featured “many common issues” and “much overlap”.

The individual defendant in the court proceedings applied to strike out the statement of claim and discharge a freezing injunction granted against her.  She then applied for an order that: (i) the hearing of her application should be held in private, the decision should not be published, and documents containing information relating to the arbitration should be kept confidential; or alternatively, (ii) the hearing should be private, and the decision anonymised and redacted, whenever there would be disclosure of information relating to the arbitration.

The defendant referred in support of her application to the confidentiality provisions in sections 16 and 18 of the Hong Kong Arbitration Ordinance:

• Section 16 provides for court proceedings under the Arbitration Ordinance to be heard in private by default, subject to the court’s discretion to hold proceedings in open court.  This is a departure from the default position that Hong Kong court proceedings should be heard in open court (as discussed further below).

• Section 18 prohibits the parties from disclosing information relating to a Hong Kong-seated arbitration or an award made in that arbitration, subject to exceptions where disclosure is made to (i) protect or pursue a legal right or interest of the disclosing party, or enforce or challenge the award, in legal proceedings before a court or other judicial authority in or outside Hong Kong, (ii) any government or regulatory body or court or tribunal, where the party is obliged by law to make the disclosure, and (iii) a professional or any other adviser of any of the parties.

The defendant asserted that the claimant’s commencement of parallel court and arbitration proceedings effectively opened a “loophole” allowing the claimant to breach its confidentiality obligations “through the backdoor”.

Decision

Deputy High Court Judge KC Chan rejected the confidentiality application, reasoning that: 

• The claimant company was suing different parties in the two sets of proceedings.  A proposed amendment to the claimant’s statement of case contending that the respondent company in the arbitration was an alter ego of the individual defendant in the court proceedings was being “strenuously resisted” by the individual defendant and had yet to be heard.  The court therefore declined to take account of this issue in deciding on the confidentiality application.

• The starting point must be that open administration of justice was a fundamental principle of great importance, as elucidated by the Court of Appeal in Asia Television Ltd v. Communication Authority [2013] 2 HKLRD 354 and enshrined in Article 10 of the Hong Kong Bill of Rights Ordinance.

• Any departure from open justice must be justified by the circumstances of the case in question, with a central consideration being whether this was required for the due administration of justice.

• Section 18(2)(a)(i) of the Arbitration Ordinance permitted a party to disclose information in relation to an arbitration “to protect or pursue a legal right or interest of [that] party”, as an exception to the general prohibition on such disclosure set out in section 18(1).  Article 45.3 of the 2018 HKIAC Rules (which applied to the arbitration) contained a similar provision.  (Although not applicable in this case, the 2024 HKIAC Rules contain the same provision.)

• It was not disputed that the claimant company was entitled to bring the court proceedings against the individual defendant as of right, and any disclosure was therefore made to pursue a legal right or interest within the meaning of section 18(2)(a)(i) of the Arbitration Ordinance and Article 45.3 of the HKIAC Rules. 

• The English Court of Appeal case of CDE v. NOP [2021] EWCA Civ 1908 (which also involved allegations of fraud) reinforced that conclusion and did not assist the individual defendant (as she had claimed).  Indeed, that case suggested that considerations in favour of confidentiality would have less force in the context of a hearing at which the merits of the dispute would be considered and decided.  That was pertinent here as the striking-out application could potentially affect the claimant’s substantive rights.

• The onus was on the individual defendant to satisfy the court that there were other cogent reasons (save arbitral confidentiality) to justify a departure from open justice, and she had not done so.

Comment

The court’s decision reflects well-established principles in relation to arbitral confidentiality (and its exceptions) on the one hand and open justice in court proceedings on the other. 

Importantly, the court proceedings which were the subject of the confidentiality application were not brought under the Arbitration Ordinance in relation to or in support of an arbitration.  Accordingly (and although not stated expressly in the decision), it follows that section 16 of the Arbitration Ordinance (which provides for court proceedings under the Ordinance to be private by default) would not have applied.

Although the court proceedings appear to have arisen from the same underlying dispute as the arbitration, moreover, they were brought “as of right” against a different, albeit related, party (subject to the alter ego issue, which was not considered by the court).

The decision underlines the importance of considering, at the contract drafting stage, whether there are related entities or persons of the parties by or against whom claims might be brought in the future in relation to the relevant transaction, and if so whether to make them party to the arbitration agreement.  Where such entities or persons are not bound by the arbitration agreement, court proceedings might legitimately be brought by or against them in the future which relate to, or involve the same or overlapping issues as, any underlying dispute covered by the arbitration agreement.  Parties should be aware of the risk that relevant information relating to an arbitration or award might be validly disclosed in those proceedings without the imposition by the court of confidentiality protections (although the approach taken in any given case will depend upon the rules of the jurisdiction in question).