For companies in the aviation sector, your reputation and brand in both the Middle East market and internationally is key to the success of your business. When commercial disputes arise, is your company’s valuable reputation and brand at risk and what can you do to protect it?
Eversheds LLP commissioned independent research with King’s College London involving 82 General Counsel at international companies and financial institutions (entities with a declared annual turnover of more than US $1 billion) to understand how large organisations go about resolving high value commercial disputes. Although wary of becoming involved in a dispute because of the likely costs, the participants identified that one of the most important factors which drives them to engage in a commercial dispute is the need to protect their organisation’s reputation.
It was interesting that despite these reputational concerns, more than twice as many of these companies’ disputes were resolved through litigation before national courts than were resolved through international arbitration. Fighting commercial disputes through national courts can threaten reputation and brand because of the very public nature of court battles and the related public allegations and criticism.
If the protection of reputation and brand is such a key concern for companies and organisations in the aviation sector and a key factor in any dispute strategy then your company should consider what steps you can take to protect them before a dispute arises. A key question is whether your commercial agreements should provide for disputes to be settled by arbitration rather than through the public courts. This could result in the dispute being resolved with an arbitration award which is enforceable internationally and in circumstances where both the underlying transaction and the dispute need not become public knowledge.
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Arbitration and the advantage of confidentiality
An arbitration agreement is a contractual agreement between parties to finally resolve their disputes by arbitration. The parties usually agree that a tribunal will hear and decide the dispute in accordance with a set of rules, most commonly the rules of a major arbitral institution. When compared to court litigation, arbitration generally provides greater confidentiality and control over the dispute process. It is not uncommon for no one outside the dispute to know that there has been an arbitration at all.
In some jurisdictions (e.g. England, Singapore and Hong Kong) a duty of confidentiality is implied into international arbitration agreements as a matter of law and this may be one reason why you choose to seat your arbitration in one of these jurisdictions. In addition, many of the main sets of institutional rules which the parties may choose to govern their arbitration also provide for confidentiality. These include the rules of major institutions in the Middle East such as the Dubai International Arbitration Centre and the DIFC-LCIA. The parties can also expressly provide for confidentiality in their arbitration agreement.
This confidentiality means that documents produced or disclosed by the parties during an arbitration (including statements of case, witness statements and expert reports) cannot be made public. Contrast this with court proceedings where non-parties including the press can obtain copies of documents filed at court. Aside from reputational issues this also means that sensitive details of the underlying deal which has led to the dispute can be kept confidential. To use just one example, we have recently acted in a number of arbitrations involving aircraft leasing agreements and related security agreements and guarantees in which the clients were able to keep their pricing and valuation structures confidential.
Arbitration hearings are private in contrast to court hearings which are held in public and allow for non-parties, including the press, to attend. In addition, arbitration awards (i.e. the binding decisions of the arbitrators) are confidential between the parties- in contrast to court judgments which are often handed down publicly in court, copies of which are often readily available to non-parties.
It should be said that confidentiality in arbitrations cannot be guaranteed. It can require that supporting court proceedings be commenced to prevent the other party making a public disclosure if it is determined to do so, and it is possible that if an arbitration award is later challenged in a local court this may render the award public. However, the likelihood of maintaining confidentiality in an arbitration is much greater than in court litigation and is a significant advantage. When combined with the fact that an arbitration award can be enforced internationally under the New York Convention and other international conventions − critical in a global industry such as the aviation industry (again contrast court judgments which are difficult to enforce cross border) − these are some of the key reasons why arbitration is growing in popularity.
There are a number of factors which should be taken into account when deciding on the most appropriate dispute resolution mechanism for a particular deal. But next time, consider taking advice on whether arbitration can work to your company’s advantage.
Stuart Dutson is Partner, Eversheds LLP. Gill Davy is Principal Associate, Eversheds LLP.
