CIArb’s Food for Thought Panel
CIArb’s Food for Thought Panel took place on Wednesday, October 19, featuring moderator Cristina Doria (Partner at Baker McKenzie). Doria kicked off the event by introducing the two main topics discussed by panellists Craig Chiasson (Partner at BLG), Anthony Daimsis (Professor at the University of Ottawa), and Joanne Luu (Partner at BD&P). The first topic explored what law governs arbitration agreements, where the panellists debated the various approaches in discerning the default governing law. The second topic dived into confidentiality in arbitration, and, more specifically, whether parties have the right to confidentiality during arbitration proceedings.
Topic One: What Law Governs an Arbitration Agreement?
To set the stage for the first issue, Doria explained that because arbitration agreements are separable from the commercial contracts within which they are typically contained, they are not necessarily governed by the same law as the rest of the contract. First, there is the bulk of the contract, which has substantive governing law. Second, there is the arbitration agreement, which may be governed by the same or a different law. In any dispute over the validity, existence, or interpretation of arbitration agreements, the law of the arbitration agreement governs. If the parties expressly choose a law to govern the arbitration agreement, three is no dispute that the chosen law governs. However, there is great contention over the default governing law: the law of the seat of arbitration or the law of the contract.
Before heading into the debate, Daimsis explained that the question of what law applies to an arbitration agreement is a perennially hot topic, which continues to have no clear answer. In addition, he clarified that this debate would deal exclusively with contracts that contain a choice of law clause for the contract as a whole and an arbitration clause naming a seat, but which do not specify the law governing the arbitration agreement.
Daimsis described four existing approaches to this issue: the national approach, the validation approach, the English approach, and the French approach. This debate mainly focused on the latter two systems, which are most-commonly employed.
Daimsis pointed to Dalico, a 1993 decision of the French Cour de cassation, as an example of the national approach. This case indicates that since the parties intended to arbitrate, there is no need to fuss in finding the appropriate applicable agreement. Simply put; if it is clear the parties agreed to arbitrate, they should arbitrate; no further rules of validity are needed.
Under the validation approach, if there is more than one law that might plausibly govern the arbitration agreement, courts will look to whichever law will make the agreement valid. Only one country has codified this approach, Switzerland.
Daimsis then turned to his favourite approach: the English approach. According to Daimsis, the theory states that if there is a choice of law clause in a contract, the parties should be presumed in the absence of contrary evidence to have intended that the law governing the bulk of the contract also governs the arbitration agreement.
Last, Daimsis looked to the French approach. This approach emphasizes the close relationship between the seat of arbitration and the arbitration agreement: by choosing a seat of arbitration, the parties agree to subject their arbitration to the laws of that jurisdiction. Accordingly, the contract law of the seat should apply to determine issues of the validity and interpretation of the arbitration agreement. For example, Damsis indicated that if a contract has a choice of law clause calling for English law, but chooses Paris as the seat of arbitration, French law governs the arbitration agreement.
Anthony Daimsis for the English Approach
Daimsis began the debate by acknowledging that both sides are defensible. However, in his view, the English approach makes more sense. Daimsis suggested that while parties are free to have every clause governed by a different law, this is not a wise approach. As a matter of commercial instinct, parties do not normally turn their minds to the idea that one clause within their contract may be governed by a different law than the others.
Daimsis continued by pointing to what he sees as the fundamental error in the French approach: a misappreciation of separability. The French take the perspective that an arbitration clause is a separate contract such that, when a contract has an arbitration clause, the parties have entered into two agreements. However, Daimsis disagreed with this. While the French Code of Civil Procedure contains an unusually stringent separability rule, separability is more limited under Model Law and most national arbitration statutes. An arbitration clause only applies when the main contract is under attack and, to protect the tribunal's jurisdiction, you can separate them. However, if the contract is not under attack, there is no need to separate. In other words, separability is a legal fiction to be called upon when needed, not a statement that an arbitration clause is an entirely distinct contract.
Craig Chiasson for the French Approach
In response to Daimsis, Chiasson asserted that the English approach is ‘ridiculous.’ According to Chiasson, the French approach respects separability and provides more certainty for parties in court. Moreover, the French approach dissuades national courts from their propensity to overthink and overcomplicate the agreement. As such, courts should credit parties for turning their minds to the significant legal implications of their choice of the seat of law.
To further his point, Chiasson turned to legislation and case law. First, he looked to article 5.1(a) of the New York Convention which states that where an agreement is not valid under the law to which the parties subjected it, the seat of law is the default. Hence, Chiasson explained that this tells the world what the default law is when there is a problem should be the law of the seat. Second, Chiasson cited an article in the McGill Journal of Dispute Resolution, which explains that, evidently, a majority of English cases have directly contradicted each other but always end up finding that London is the seat of arbitration; in other words, there isn't really an "English Approach”, just English courts’ preference for their home jurisdiction. As such, Chiasson does not subscribe to the view that a French seat is irrelevant just because a contract is governed by English law. Rather, commercial parties need to turn their mind to this issue and gain an advantage in legal negotiations.
Finally, to address Daimsis’ point on separability, Chiasson referred to Section 7 of the English Arbitration Act, which provides expresses the separability principle, namely that an arbitration agreement should not be regarded as invalid or ineffective because the main agreement is not valid, did not come into existence, or became ineffective. For this reason, along with the fact that the Act refers to an “arbitration agreement” rather than an “arbitration clause,” the main agreement should be treated as a separate agreement from the arbitration agreement.
The Practical Importance of the Debate
To end the debate, Luu gave some insight into how to deal with the present uncertainty on this issue, in particular what lawyers can do to prepare their clients. She started by explaining that the vast majority of solicitors do not turn their minds to this issue. For example, if you ask solicitors what law applies to the arbitration agreement, the response would likely be the governing law provision. Practically speaking, this is as a result of the chaos that occurs during the drafting phase. However, as a general rule, Luu suggested that if something requires a particular law to apply to the arbitration agreement specifically, it is best to stay silent on this issue since it preserves flexibility. As an advocate for your client, it is difficult to discern which law will ultimately be the most advantageous for one’s client if a dispute arises.
In response to Luu, Chiasson suggested that leaving the certainty of the arbitration clause for a later date will lead to both parties fighting over the issue in court. In agreement, Daimsis stated that by leaving the arbitration agreement open, there is too much uncertainty. However, Daimsis also mentioned that by leaving the arbitration agreement for later, a decisionmaker who is minded to take a validation approach might provide an extra, even less predictable, choice.
Topic Two: How Confidential is Arbitration?
Doria began discussion of this topic by describing confidentiality as a hallmark of arbitration. Despite this, parties need clarification about what confidentiality looks like before, during, and after arbitration proceedings.
Luu explained that arbitration is confidential where a right to confidentiarliy exists. The first place to look for such a right is the parties' agreement. However, supposing that the parties fail to agree to an express confidentiality duty, one must look at legislation, case law, and adapted rules that might be grounds for a confidentiality right. Without express grounds from one of those sources, there is no right to confidentiality in the given arbitration.
Notably, Luu explained that in Canada, most arbitration statutes are silent on confidentiality—except British Colombia, Quebec, and Nova Scotia, which legislate that arbitrations will be held in private and related documents must not be disclosed. However, even in these provinces an exception arises if a party seeks court intervention. Confidentiality in arbitration does not rise to the same level of privilege nor protection as the truth-seeking function of the court and the open court principle. In extreme cases, parties apply for a sealing order. However, courts typically make such orders only when a trade secret, sensitive, or technical information is at risk. The threshold for a sealing order would not be met for the average commercial arbitration.
To further Luu’s point, Chiasson explained that the Supreme Court of Canada has held that a sealing order requires a high threshold. An applicant must demonstrate: 1) serious risk to an important public interest if the order is not made, 2) that the order is necessary to prevent the risk to an identified interest, 3) that there is no reasonable alternative measure that would prevent the risk, and 4) and that the benefits of the order outweigh the negative impact of denying the order.
Is there a trend toward transparency?
To conclude the panel, the panellists engaged in an open discussion of the future of confidentiality versus transparency in arbitration. Chiasson first looked at the International Centre for Dispute Resolution Canada (ICDR) and the International Court of Arbitration (ICC), whose rules have a lighter in that they do not guarantee confidentiality to parties by default. On the other hand, many large arbitration institutions, such as the Australian Centre for International Commercial Arbitration (ACICA), have complete confidentiality protection. Chiasson explained that while it might seem like institutions advocate for transparency, it is the service providers and parties that want confidentiality.
Daimsis finished the conversation by advising solicitors to be wary when choosing a set of rules because of strong confidentiality. Parties are at the mercy of the centre institution changes its rule on confidentiality, and when a dispute arises, rules enforced at the time of the dispute are the rules applied to the debate. Put simply: if you want confidentiality, do not rely on rules; make a separate and robust agreement.
* JD Student, Queen’s University Faculty of Law; Assistant Managing Editor of Productions, Canadian Journal of Commercial Arbitration.