By Udisha Ghosh, Symbiosis Law School, Pune
“Editor’s Note: One of the main reasons why arbitration is preferred over litigation is because of the confidentiality of proceedings and the award. It maintains the autonomy of the parties and prevents them from unwanted publicity. However, many international rules and national statutes do not discuss the issue of confidentiality because of unresolved areas like-whether confidentiality is implied in a contract of commercial arbitration, if the witnesses are also bound by confidentiality, whether privacy and confidentiality mean the same. Through judicial decisions, some nations have settled these contentions; while others are yet to do so. It is also being argued that confidentiality often impairs transparency in arbitration proceedings and there must be limited disclosure in public interest. There set some grey areas that need to be addressed in order to bring about clarity in law.”
It has been a standard practise now to include the term ‘confidentiality’ in the benefits of international commercial arbitration. The reason why the confidentiality clause is generally included in the contract or arbitration agreement is to save the parties from the glaring eyes of the media, competitors or even the savaging authorities. It further plays an important role in disputes involving intellectual property rights and trade secrets, thus saving the position in the marketplace. However, this also raises certain moral as well as ethical questions regarding the meaning as well the obligation on the part of the institutions and parties regarding the meaning and limitation on arbitrational confidentiality.
The arbitration procedure is based on party autonomy, where both the parties decide the procedure as well as the circumstances under which an arbitration is sought. Generally it is made in form of a contract which is formulated much before the dispute actually arises. The “rules of the game”, such as applicable law, the seat of arbitration, the language of the proceedings may also include a provision to govern confidentiality issues.[i]
Even the UNCITRAL Model Code on International Commercial Arbitration refrains from laying down any provision on the controversial topic of confidentiality and it is left to the parties or arbitral rules that the parties have chosen. The UNCITRAL notes on Organising Arbitral Proceeding have certain useful observations[ii]:
“There is no uniform answer in national laws as to extent to which the participants in arbitration are under the duty to observe confidentiality of information relating to the case. Moreover, the parties that have agreed on arbitration rules or other provisions that do not expressly address the issue of confidentiality cannot assume that all jurisdictions would recognise an implied commitment to confidentiality.”
Importance of Confidentiality in Arbitration
Confidentiality has in recent times been given great impetus while solving disputes through arbitration. The major reasons why it has been given so much importance is: Firstly, certain parties do not wish to represent certain allegations in public such as misrepresentation, incompetence, lack of financial resources etc.[iii] Secondly, confidentiality protects the trade secrets or other important private business information from the public or the competitors. Thirdly, in certain cases the parties may want to take a particular stand privately and if the proceedings are done publicly it will have to take a different stand altogether. For example, this may take place with the government, which is a party to dispute but answerable to the electorate for its actions. Though the government may altogether want to take a different stand, but it may upset the people of his constituency. Thus in such cases confidentiality in arbitration plays a major role.
In arbitration proceedings, three major parties are required to participate i.e. the disputing parties, the arbitrator and other third party such as experts or witnesses. Sec. 9 of International Bar Association –Ethics of Arbitrator suggests that the arbitrator has an ethical duty of confidentiality. But the third parties (experts, witnesses) are under no such duty in case of an agreement to contrary.[iv] The duty of the parties may change according to the laws of different nations or institutions. This is a major flaw since there are no proper guidelines for the third parties and formulation of proper rules should be done else the whole purpose of arbitration would be nullified.
Privacy and confidentiality: The difference
A glaring question which has been raised from the time of the formulation of institutional rules on arbitration is that whether privacy and confidentiality are similar or not? To answer this, a crucial distinction should be made between ‘privacy of arbitral proceedings’ and ‘confidentiality of proceedings’.[v] The privacy in arbitral proceedings is that no third party shall be involved in observing or be given access to any kind of information regarding the proceeding. Thus business partners, spouses or share holders are not given access to any information regarding the proceeding. However, ‘confidentiality of proceedings’ means that the arbitrators, parties in dispute or the witnesses are to maintain confidentiality regarding the disclosure of their oral statements, documents tendered in arbitration and observations of the conduct of the parties or the witnesses. Though these are two different terms, yet they are corollaries to each other, since the reason of privacy is a concern for confidentiality. Privacy will be meaningless without confidentiality.[vi]
Judicial Perspective on Confidentiality
Various nations have different approaches to confidentiality, though some nations like to consider that confidentiality is implied an concept within arbitration; however certain nations differ from this view.
No Implied Confidentiality
In this case, arbitration was initiated by a finance company against the Bulgarian Bank; the bank argued that it was not bound by the arbitration clause to which it is not a party. The arbitrator’s gave a ruling that the bank was bound by the clause that was published in Meanley’s International Report, which was received by the counsel on behalf of the finance company. When the company learnt about the publication, it claimed for an award from the bank for the violation of the laws under the UNECE laws. The Swedish Court held that UNECE rules do not forbid disclosure of the result of the arbitration proceedings and Swedish laws do not make arbitration proceeding secret unless and until the agreement expressly mentions that there should be a confidentiality clause. Thus, Sweden was one of the first countries to deny implied confidentiality.[viii]
United States v. Panhandle E. Corp[ix]
The federal government of Panhandle in this particular case ordered a US company to produce documents from an ICC arbitration between Panhandle’s subsidiary and an Algerian state oil company. Panhandle sought to block discovery, arguing that arbitration is confidential in nature and that disclosure would frustrate the parties’ expectations. The court held that there is no implied confidentiality until and unless the parties agree to. Further, the ICC Rules places no obligation of confidentiality on parties.[x]
In this particular case, Aita was seeking in France, an annulment of an award which was earlier rendered in arbitration proceedings in London. The Court of Appeal in Paris ruled against the party, holding that the annulment proceedings violated the principle of confidentiality. He was ordered to pay a fine to the other party for the breach.[xii] As the Court noted, the action “caused a public debate of facts which should remain confidential . . . the very nature of arbitral proceedings [requires] that they ensure the highest degree of discretion in the resolution of private disputes, as the two parties had agreed.” [xiii] Thus this decision shows that France accepts the principle of implied confidentiality.
Esso Australia Resources Ltd and Ors. v. Plowman (Minister for Energy and Minerals) &Ors[xiv]
In this case the question that was raised was whether an arbitrating party is under an obligation of confidenciality in relation to documents and information disclosed in and for purposes of a private arbitration.[xv] The court did not make any distinction between confidentiality and privacy. It said that the privacy of arbitration exists to maintain the confidentiality of dispute which parties have agreed to submit to arbitration and any curtailment in the confidentiality will affect the privacy of the parties.[xvi]
Arbitration Institutions on Confidentiality
- International Chamber of Commerce: ICC is one of the most renowned and popular dispute resolving bodies through arbitration. The ICC drafters considered the issue of confidentiality, but could not agree upon a general duty of confidentiality binding on all participants in ICC arbitral process.[xvii] ICC Rules permit the arbitral tribunal “to take measures for protecting trade secrets or confidential information”[xviii]. Thus ICC Rules give power to the parties, court and the agreement for resolving any dispute in respect of confidentiality.
- United Nation Commission on International Trade Law(UNCITRAL) – UNCITRAL Rules provide for privacy but do not mention about confidentiality
Art 32.5 states that “An award shall not be made public without the consent of the parties.”[xix]
- The American Arbitration Association(AAA)-The American Arbitration Association o(AAA) International Arbitration Rules under Art. 34 state that ‘confidential information disclosed during the proceedings by the parties or witnesses shall not be divulged by an arbitrator.’[xx]
- International Centre for Settlement of Investment Disputes (ICSID)- The ICSID Rules are similar to the UNCITRAL Rules in terms that they consider privacy as an essential element of arbitration but do not give impetus to confidentiality. Rule 15.1 provides for secrecy and privacy of deliberation by the tribunal.[xxi] Further, Rule 4.8 provides that the centre shall not publish the award unless parties give consent.[xxii]
- Arbitration Rules of the London Court of International Arbitration(LCIA)- These are only rules which give a detailed explanation on confidentiality. Article 19 states that all meetings and hearings shall be private unless the parties agree and the tribunal directs so. Further, under Art. 30 there is a presumption of confidentiality for both the parties and arbitrators with respect to any documents or evidence during the proceedings and the award. [xxiii]
Limitations of Confidentiality
While the arbitral process is confidential, yet there are situations in which these processes have to be disclosed by the parties. In certain instances the parties may have to disclose both the proceedings as well as the awards under their reporting obligation.[xxiv] For instance in UK, the Disclosure Rules require companies listed on full list to disclose any information, which if available would likely affect the stock of the company. Similarly in the US, SEC Rules and Financial Statements Regulation [xxv] may require disclosure of material arbitration proceedings which company is defending and possibly those in which company is complainant.[xxvi]
Disclosure in Public Interest
In certain situations it is important that public interest be recognised and the ‘cloak of confidentiality’[xxvii] be removed for the larger good of the people. For instance, when the situation involves the financial condition of a public company, then such report should be disclosed. Similarly, there is a duty to disclose any award against the party in case it owes a fiduciary duty to another party. Disclosure should also be made to the shareholders, creditors, partners or any other party having legitimate interest in the affairs of the parties. These public interest affairs should be considered before making any uniform law on confidentiality, so that the interests of all the parties are taken care of. Thus, partial transparency and partial confidentiality should be maintained where interest of public at large is concerned.
Suggestions made in the respect to confidentiality to resolve such disputes:
While considering the issue of confidentiality, following suggestions are being made in order to reduce the growing complexity as well as to solve the ever increasing dispute on confidentiality. Some of suggestions are given below:
- It should be made a mandatory clause in all private international arbitrations that the names of the parties or the relief requested should not be unilaterally disclosed to a third party. A regulatory body should be formulated whose permission would be required for disclosing information about any arbitration proceeding.
- Awards should be treated as confidential and should not be communicated to a third party, unless all the parties and arbitrator agree to, or if they fall under ‘public domain’[xxviii] and affect the interest of public in large. They should only be disclosed in situations where it is important to comply with the legal requirements imposed on an arbitrating party or protect a person’s legal right to a third party.[xxix]
- Though awards cannot be made public, yet the legal reasoning under which the specific judgement is given should be published on particular portals only. This maybe act like a precedent for the arbitrators in future Though the name of the parties in dispute should not be disclosed.
- Confidentiality should not be left as an unresolved area in international arbitration; rather proper codification should be done. It is important so that the parties resolving disputes through arbitration can clearly understand the terms and conditions under which it works instead of leaving it to the discretion of the arbitrator or the courts.
- Any document or evidence so provided during the arbitration proceedings should be considered confidential and not disclosed to the third party, without the consent of the parties or order of the court. Also, witnesses should not be termed as third parties since they are given access to the evidence obtained in arbitration in order to prepare his testimony.
Though confidentiality is one of the major reasons why arbitration has become popular in the recent time, yet there are certain questions which are still left to be answered. For instance, whether confidentiality should be maintained or wtransparency should be given more impetus. Thus, finding a middle way to the extent may contribute in achieving a balance between the two. Further, it should not be forgotten that the major reason why arbitration is preferred over court proceedings is due to the element of confidentiality. Since majority of nations do not have a prescribed law, it leaves a grey area. Hence, it is important that the arbitral institutions as well as the national laws should be better constructed so that the ambiguity in confidentiality is resolved .
Edited by Kudrat Agrawal
[i] Confidentiality v. Transparency in Commercial Arbitration: A false contradiction to overcome, Transnational Notes- Reflection on transnational litigation and commercial Law, December 28, 2012.
[ii] United Nations Commission on International Trade [UNICITRAL], UNICITRAL Notes on Organizing Arbitral Proceedings, 31, U.N Doc . A/C .9/423 (Oct 4, 1996).
[iii] Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 27 (3d ed.1999).
[iv] Ajit Kaushal, The Issue of Confidentiality in International Commercial Arbitration 4.
[v] Richard C. Reuben, Confidentiality in Arbitration, 54 U. Kan. L. Rev.
[vi] Fortier Y., The Occasionally Warranted Assumption Of Confidentiality, 15 Arb. Int’l 131, 131-132 (1999).
[vii] Case No. T 1881-99 (Swedish Sup. Ct. 27 Oct, 2000).
[viii] Also see Jeffery W. Sarles ,Solving the Arbitral Confidentiality Conundrum in International Arbitration, pg. 3.
[ix] 118 F.D.R 346 (D. Del 1988).
[xi] 1986 Rev. Arb. 583.
[xii] Judgment of 18 Feb. 1986, 1986 Revue DE L’ARBITRAGE 583, discussed in Jan Paulsson & Nigel Rawding The Trouble with Confidentiality, 11 ARB. INT’L 303, 312 (1995).
[xiii] Ibid at 305.
[xiv] (1995)128 A.L.R 39.
[xv] (1995)128 A.L.R 39.
[xvi] Ajit Kaushal ,The Issue of Confidentiality in International Commercial Arbitration, pg. 9.
[xvii] W. Lawrence Craig ET Al., International Chambers of Commerce Arbitration 311(3d ed. 2000).
[xviii] International Chamber of Commerce, Rules of Arbitration, Art . 21.3 (effective 1 January 1988).
[xx] The American Arbitration Association, International Arbitration Rules, Art. 34 (Effective 1 November 2000)
[xxi] International Centre for Settlement of Investment Disputes, Rules 15.1 and Rule 4.8; See Ajit Kaushal, The Issue of Confidentiality in International Commercial Arbitration, pg.10.
[xxiii] LCIA Arbitration Rules Art. 30.1 (1998) ;See Cindy G. Buys ,The Tensions between Confidentiality and Transparency in International Commercial Arbitration, 14 American Review of International Arbitration , 126-127 (2003).
[xxiv]Muhammad Kamal Hassan, Effects Implications and Repurcussions of the Connundrum Of Arbitral Confidentiality in International Commercial Arbitration.
[xxv] Security and Exchange Commission of US is responsible for enforcing federal securities laws and regulating securities industry. http://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission
[xxvi] http://www.sec.gov/rules/proposed/33-8138.htm, Also See Muhammad Kamal Hassan, Effects Implications and Repurcussions of the Connundrum Of Arbitral Confidentiality in International Commercial Arbitration
[xxviii] Jan Paulsson and Nigel Rawding , The Trouble with Confidentiality 11 Arb. Int’l 48 (1995).