- Arbitration and Disclosure Obligations of Listed Companies
- June 12, 2012 | Author: Bill Amos
- Law Firm: Mayer Brown JSM - Hong Kong Office
Hong Kong listed companies engaged in major legal proceedings often have to consider the extent to which they are obliged to disclose to investors the details of the dispute in question. Where the proceedings are the subject of arbitration, there is an additional need to take into account the duty of confidentiality, one of the hallmarks of arbitration.
For Hong Kong arbitrations the duty of confidentiality is now delineated by statute.
Continuous and periodic disclosure
The Listing Rules place on issuers continuous disclosure obligations, which include the duty to disclose promptly any price sensitive information ("PSI"). The new statutory PSI disclosure regime will come into force on 1 January 2013; for details, please refer to our Legal Update "New Statutory Price Sensitive Information Disclosure Regime to Take Effect on 1 January 2013".
Issuers are additionally under periodic reporting obligations to make proper disclosure of contingent liabilities in their financial statements.
The requirements for disclosure will depend on factors such as the identity of the parties involved (for example, if the opponent is a major customer of the issuer), the extent of the sums at stake, as well as the likelihood of the contingent liability becoming an actual loss.
In complying with their regulatory obligations, issuers must ensure that they do not commit a breach of confidentiality in respect of the arbitration.
Confidentiality of arbitration
Traditionally under Hong Kong law there has been implied into every arbitration agreement an obligation of confidentiality. However, it was left to the courts to define the nature and scope of that obligation. Case law generally held that confidentiality extended to documentary and oral evidence given in the arbitration, as well as to the arbitration award itself. Issues however remained over whether confidentiality applied to the very existence of the arbitration proceedings themselves and to the identity of the parties in dispute. Faced with their regulatory disclosure obligations, issuers needed to rely upon the "public interest" exception as laid down, but not exhaustively defined, by the courts.
Hong Kong's Arbitration Ordinance (Cap. 609)
The new Ordinance, which came into effect last year, includes an express duty of confidentiality in respect of arbitration proceedings and awards, subject to a number of exceptions. Hong Kong is one of the few jurisdictions to have included in its arbitration statute a confidentiality provision of this nature.
Section 18 of the Ordinance includes a number of exceptions to the general duty of confidentiality. Disclosure of information relating to the arbitration is not prohibited where it is (1) to protect the party's legal right or interest; (2) to enforce or challenge the award in legal proceedings, or (3) made to any government body, regulatory body, court or tribunal and the party is obliged by law to make the disclosure.
The exception concerning disclosure to a regulatory body clearly includes filings and submissions made to the Hong Kong Stock Exchange pursuant to an issuer's regulatory obligations. This is a welcome clarification of the law, but it does not of course permit indiscriminate disclosure of information relating to an arbitration. Disclosure must be restricted to information which an issuer is legally obliged to provide.
In considering statutory or Listing Rule disclosure requirements, issuers and their advisers must continue to observe the duty of confidence inherent in arbitration. This is consistent with the new statutory PSI disclosure regime, which grants "safe harbour" to listed companies if they are prohibited from disclosing inside information under Hong Kong legislation or court order.
For Hong Kong listed companies engaged in overseas arbitrations, such as LCIA, ICC or CIETAC proceedings, the disputes will be subject to the confidentiality provisions of the jurisdiction in question, as well as the relevant arbitral rules. Under the new statutory PSI disclosure regime, Hong Kong's Securities and Futures Commission will also have the discretion to authorise non-disclosure or waivers, in the event that these are appropriate for information which is prohibited from disclosure under overseas arbitration laws.