CZT v CZU: Deliberative Secrecy in Arbitration

In CZT v CZU,[1] the plaintiff – seeking to set aside the award of an arbitral tribunal on the basis of serious allegations by the dissenting arbitrator against the two other members of the tribunal – brought an application to compel the arbitrators to produce records of their deliberations.

The Singapore International Commercial Court (“SICC” or “Court”) dismissed the plaintiff’s production application, concluding that the plaintiff had not demonstrated that the interests of justice outweighed the policy reasons for protecting the confidentiality of deliberations. In the Court’s view, the application to set aside the award could proceed without those records.

The decision is an important benchmark in terms of deliberative secrecy in arbitration, which according to the Court, will only yield in the rarest of cases, which generally would not include bare allegations even of a serious nature.

Background

The plaintiff entered into a contract with the defendant to deliver certain component packages that included materials, machinery and equipment, which the defendant subsequently alleged were defective. The defendant commenced arbitration proceedings in Singapore under the Rules of Conciliation and Arbitration of the International Chamber of Commerce (“ICC”) in Singapore. The majority on a panel of three (the “Majority”) found in favour of the defendant. However, the dissenting arbitrator (the “Minority”) made various allegations against the majority, accusing them of:

• having “engaged in serious procedural misconduct”,
• “continued misstating of the record”,
• attempting “to conceal the true ratio decidendi from the Parties”,
• “distortion of the deliberation history”,
• a lack of impartiality, and
• knowingly stating an incorrect reason for the Minority’s refusal to sign the Majority’s final award (the “Final Award”).[2]

The Minority concluded in his dissent that he had “lost any and all trust in the impartiality of [his] fellow arbitrators”.[3]

On the basis of this apparent “smoking gun,” the plaintiff brought an application before the SICC to have the award set aside under Singapore’s International Arbitration Act 1994 (2020 Revised Edition). When the ICC Secretariat and all three members of the panel refused voluntarily to hand over records of the deliberations, the plaintiff filed summonses in the SICC against the three arbitrators for production of their records.

The SICC’s Decision

With respect to general principles of deliberative secrecy, it was common ground between the parties that the records of arbitral deliberations are confidential by default and therefore protected against production orders, and the Court agreed that “it can scarcely be argued otherwise” even though no statutory provision expressly protects the confidentiality of arbitrators’ deliberations.[4] In the Court’s view, the confidentiality of deliberations, like the confidentiality of arbitral proceedings themselves, “exists as an implied obligation in law”[5] – that is, it exists at common law independent of (or in addition to) any statutory, institutional, or contractual provision to similar effect, for the following well-recognized policy reasons (which readers will recognize as very similar to the reasons justifying deliberative secrecy for courts):

• Confidentiality is a necessary pre-requisite for frank discussion between the arbitrators;
• Freedom from outside scrutiny enables the arbitrators to reflect on the evidence without restriction, to draw conclusions untrammelled by any concern in respect of subsequent disclosure of their thought processes, and, where they are so inclined, to change these conclusions on further reflection without fear of subsequent criticism or of the need for subsequent explanation (e.g., to the party who appointed them);
• The duty of the tribunal to keep deliberations confidential protects the tribunal from outside influence (i.e., discourage an arbitrator from leaking or publicising discussions or decisions with which they disagreed); and
• The rule helps to minimise spurious annulment or enforcement challenges based on matters raised in deliberations or differences between the deliberations and the final award and is thereby critical to the integrity and efficacy of the whole arbitral process.[6]

The parties were also in general agreement that the default rules of confidentiality with respect to arbitral deliberations are subject to exceptions. The plaintiff argued that confidentiality will yield in appropriate circumstances to “considerations of due process, the interests of justice and the public policy of preserving the integrity and reputation of Singapore as a seat of arbitration.”[7]Conversely, the defendant and one of member of the Majority (who was present before the Court) argued that confidentiality will yield only in the “rarest of cases”, and requires “the most compelling reasons and exceptional circumstances”.[8] The member of the Majority further drew a distinction between “process issues” and “disagreements on substance”, and submitted that there is an exception for process issues, such as “allegations that one arbitrator has been excluded from deliberations”.[9]

The Court agreed that the plaintiff’s formulation was too wide in scope, and found that confidentiality of deliberations only applies to protect substantive disagreements that involve an arbitrator’s thought processes or reasons for his/her decision; conversely, confidentiality does not apply to “essential process issues”. However, the Court did not consider the protection of essential process issues to be an exception to the principle of confidentiality, because such process issues do not represent the tribunal’s thought processes or reasons for decision, and therefore do not engage the policy reasons for protecting confidentiality in the first place.[10] The Court relied on case law from the UK and Australia, as follows:

In Duke of Buccleuch,[11] the court held (at 457) that an arbitrator may be questioned as to what had taken place before him, including what matters had been submitted to him for decision, but he could not be questioned as to how he arrived at his decision. In Nathan v MJK Constructions [1986] VR 75 (“Nathan”), the Australian Supreme Court of Victoria held that whilst an arbitrator may not be questioned as to his reason for making a particular decision, there was no policy reason why he should not give evidence as to what took place before him.[12]

The Court also acknowledged that the line between process issues and substantive issues is not always clear, and that “there may also well be some issues which are described as ‘process issues’ which raise questions of fact and degree as to the extent of consultation between arbitrators which could give rise to the need to explore deliberations”. On the facts of this case, the Court did not find it necessary to consider that issue further.[13]

The Court found that there can be an exception to confidentiality when the facts and circumstances are such that the interests of justice in ordering the production of records of deliberations outweigh the policy reasons for protecting the confidentiality of deliberations.[14] This would only occur in the “very rarest of cases”, and would require a case involving allegations that (1) are very serious in nature, and (2) have a real prosect of succeeding.[15] For example, the Court observed allegations of corruption would be serious enough because they “attack the integrity of arbitration at its core.”[16]

The Decision

The plaintiff argued that it was entitled to production on the following grounds:

1. The majority in fact decided a key liability issue on grounds (or for true reasons) that were not contained in the Final Award, and/or as a result of a breach of the fair hearing rule, which can arise from the chain of reasoning adopted by the majority.
2. The majority attempted to conceal the true reasons behind the Final Award.
3. The Majority lacked impartiality.[17]

With respect to the first argument, the Court found that  even if it were true, it would be insufficient to displace the protection of confidentiality, and that this allegation could in any event be decided on the basis of the arbitration record alone (i.e. without reference to deliberation records). On that basis, the Court concluded that this ground could not amount to an exception to the default rule of deliberative secrecy for arbitrations.

With respect to the second argument, the Court found it “difficult to follow”.[18] The plaintiff alleged that the ICC, which reviewed the drafts of the Final Award, had approved an earlier draft (the “May Award”, and that the majority then concealed from the ICC that the final version of the Final Award included substantial changes made after the ICC had approved an earlier version. The Court was skeptical that this amounted to an impropriety, and found that the Final Award would stand or fall on its own merits, since it contained the reasons that the Majority “chose to give to justify the findings they made”.[19] The Court therefore similarly found that this ground could not constitute an exception to the default rule of deliberative secrecy for arbitrations.

With respect to the third argument, the Court found that it could – as a general proposition – constitute an exception, because “impartiality is fundamental to the integrity of arbitration proceedings”[20], and that the general principle of deliberative secrecy was not intended to facilitate the concealment from the parties of an arbitrator’s partisanship.

On the facts of this case, however, the Court did not come to a definitive conclusion, because it found that the plaintiff had not shown that its allegations on this issue had any real prospect of succeeding. This is because, while the allegations of the Minority were serious, they were bare allegations. No facts were stated in the dissent that would support the Minority’s views or opinions. The dissent did not explain how the draft May Award differed from the Final Award, nor how the Majority had allegedly distorted the history of deliberations or misstated the record.

The plaintiff argued that the Minority was constrained by what he was permitted say in the dissent, but the Court found that the Minority seemingly did not feel any such constraint given that his allegations of serious misconduct and improprieties were contained within his dissent. Rather, the Court’s analysis suggests that it was incumbent upon the Minority to fully articulate the allegations of fact necessary to support an argument that could justify an argument that the Majority lacked impartiality. In other words, if an arbitrator is to allege misconduct by other members of the same tribunal, it would seem that the arbitrator would have to go much further in particularizing such allegations in order to justify intervention by a court. Accordingly, the Court refused to allow a “fishing expedition” based on bare allegations regarding the dishonesty of the Majority.[21]

Finally, The Court found that the May Award – which the plaintiff relied upon to argue that the Majority had concealed its true reasons for rendering its ultimate decision – was protected by the confidentiality of arbitral deliberations, such that the May Award need not be produced (and the plaintiff was not entitled to receive it).

Analysis

Although CZT is a Singaporean case, and although it may be appealed, it is nevertheless of interest to Canadian readers given the novelty of deliberative secrecy in the arbitration context. Given the lack of similar case law in Canada, it may also stand as persuasive authority for parties faced with a similar situation in future (particular where Canada, much like Singapore, has placed an emphasis on presenting itself as an arbitration-friendly jurisdiction).

To that end, as CZT v CZU illustrates, the party seeking to set aside the award will, generally speaking, only be able to rely on the record. Bare allegations, even serious ones made by a member of an arbitral panel, will generally not displace the protection of confidentiality of arbitral deliberations, particularly if the case for setting aside an award can be made using the arbitration record.

This is particularly true in circumstances where the standard of proof requires ‘real prospects of succeeding’, meaning that bare allegations will invariably fail to meet that threshold. It is unclear what level of detail would be required of such allegations in order to meet such a threshold, but it stands to reason that evidence directly from the dissenting arbitrator (e.g. an affidavit or testimony) might suffice.

In that regard, the Court’s decision raises an interesting question of whether it in fact serves as guidance for dissenting arbitrators in a similar situation to CZT. In this case, the plaintiff’s argument faltered in large part due to what, in the Court’s view, was a lack of particularization in the Minority’s reasons. Going forward, it is possible that dissenting arbitrators might particularize allegations of impropriety in much greater detail, thereby pre-empting judicial concern for arbitral confidentiality by exposing the tribunal’s deliberations.

In any event, while the Court raised four policy reasons for protecting confidentiality of deliberations, it also arguably raises a fifth: finality (which, as readers will know, is arguably the most attractive aspect of arbitration). Here, the Minority alleged that the Majority was “wrong in its findings”, and disagreed with the Majority’s “conclusions and reasoning… (vehemently, in fact)”[22] – in other words, that the Majority and the Minority were in fundamental disagreement as to substantive aspects of the arbitration. Disagreements between arbitrators are not uncommon, and indeed are an aspect inherent to the very nature of the process. Such substantive disagreements, although they may be vehement and may sometimes dovetail with allegations of impropriety, are not grounds in and of themselves to interrogate the legitimacy or finality of an award.

Finally, it is also worth noting that the Court did not appear to be seriously concerned by the allegation – bare though it was – that the Majority concealed its “true” reason(s) for its decision. While this allegation can be quite serious if accompanied by allegations of corruption, or potentially allegations of partiality (assuming there is a real prospect of success), the Court observed that the “reasons for the Final Award are those that the Majority chose to give to justify the findings they made, and they stand or fall on their own merits.”[23] The distinction between the stated and unstated reasons for an award would appear to be immaterial, since the reasons that a tribunal does provide are subject to scrutiny and/or challenge.

We await with interest to see if CZT is appealed, and if so, its outcome.

[1] CZT v CZU, [2023] SGHC(I) 11. As readers will appreciate, in certain jurisdictions – Singapore among them – courts frequently anonymize party names for matters being referred from arbitration, in order to preserve (insofar as possible) the confidentiality ostensibly afforded by arbitration. This practice is typically not followed in Canada.

[2] CZT v CZU, [2023] SGHC(I) 11 at para 19.

[3] Ibid.

[4] Ibid at para 43.

[5] International Coal Pte Ltd v Kristle Trading Ltd, [2009] 1 SLR(R) 945 at 82.

[6] Ibid at para 44.

[7] Ibid at para 46.

[8] P v Q, [2017] EWHC 148 at para 68(3)(d).

[9] CZT v CZU, [2023] SGHC(I) 11 at para 49.

[10] Ibid at para 50.

[11] Duke of Buccleuch v The Metropolitan Board of Works (1872), LR 5 HL 418

[12] CZT v CZU, [2023] SGHC(I) 11 at para 51.

[13] Ibid at para 52.

[14] CZT v CZU, [2023] SGHC(I) 11 at para 52.

[15] Ibid at para 53.

[16] Ibid.

[17] CZT v CZU, [2023] SGHC(I) 11 at para 58.

[18] Ibid at para 60.

[19] Ibid.

[20] Ibid at para 61.

[21] Ibid at para 67.

[22] CZT v CZU, [2023] SGHC(I) 11 at paras 65, 69.

[23] CZT v CZU, [2023] SGHC(I) 11 at para 60.

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