Whistleblowing, cyberhacking and non-confidential arbitration

1. Sweeping new EU-wide protection for whistleblowers means firms cannot rely on internal reporting

Those who seek to expose corruption, tax evasion and a range of other crimes will for the first time be protected under law in the EU, under rules agreed by member states last month. The rules will mean that companies cannot rely on internal red flags before allegations hit public bodies or even the press, meaning firms may have to reassess their approach to whistleblowing or face increased reputational risk.

The new rules represent a huge shift in an area previously left to the discretion of each of the 28 EU member states, resulting in no protection at all in some countries.

Attempts to require whistleblowers to raise concerns internally first were not adopted in the final directive, with proponents for stronger protections arguing that this would compromise anonymity. They successfully argued that those who allege wrongdoing should be protected against potential retaliation whether they go first to the company or straight to a public body.

Whistleblowers will also be protected if breaches are disclosed to the media but only after receiving no response to the initial report.

Whistleblowing remains a contentious and varied issue across the globe. The picture in Europe remains seas apart from that of the United States, where the Securities & Exchange Commission (“SEC”) can award individuals a significant proportion of funds recovered as a result of whistleblowing. The SEC has awarded more than $320 million to 57 individuals since issuing its first award in 2012, including a record-breaking $50 million to a single whistleblower in March 2018.

 

2. Yahoo returns with $117.5m class-action offer after being criticised for disproportionate claimant costs

In a class action which covers massive data hacks from 2013-16 affecting up to three billion users, Yahoo have returned to court in the US with a proposed settlement of $117.5m and two years free credit-monitoring for the 200 million people who had their data stolen.

Whilst class actions remain a relatively new phenomenon in the UK, the lesson is to avoid being seen to put the claimant law firms before the claimant class. The case serves as an example of how, even years after the incident, the legal ramifications of a cyber breach can pose a risk to firms’ reputations.

A previous settlement proposal from October 2018 was thrown out by US California Northern District Judge Lucy Koh. Of a total settlement of $87.5m, Judge Koh criticised the tech giant for proposing $35m in claimants’ costs for 32 law firms, despite only five being authorised to work on the case by the Court. The Judge noted that these costs amounted 40 per cent of the settlement fund, versus the Circuit’s benchmark of 25 per cent.

The Court found also previously found that Yahoo’s commitments to changes in its business practices to improve data security were “vague” and other areas were lacking in enough detail to allow the court to assess the reasonableness of the settlement.

 

3. High Court: Arbitration confidentiality does not come before public interest in maintaining good arbitrators

In The Chartered Institute of Arbitrators v B, C and D, the High Court found that the public interest in maintaining the professional standards of arbitrators outweighed the confidential nature of arbitration proceedings, therefore granting access to witness statements, the arbitration hearing transcript and related correspondence.

The case shows how, even in arbitrations, public interest considerations mean that otherwise confidential documents can spill out into the public domain.

The Chartered Institute of Arbitrators (“CIArb”) brought disciplinary charges against B; B had been removed as arbitrator in a dispute between C and D on the grounds that there were justifiable doubts as to his impartiality. CIArb applied to the Court under CPR 5.4C to obtain a series of documents related to the arbitration, such as statements of case, witness statements, written submissions and skeleton arguments.

In considering the application, the Court balanced the interest of CIArb in obtaining the relevant documents against the implied confidentiality of arbitration proceedings, recognising an exception to this principle of confidentiality includes “the interests of justice”. The Court concluded that there is a public interest in maintaining the quality and standard of arbitrators which extends beyond the interests of the parties.

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