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. 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 to bring about clarity in law.
The issue of confidentiality is key to the successful practice of international commercial arbitration. The confidentiality of arbitration proceedings is a reason for resorting to arbitration, as distinct from litigation. It is a collateral expectation of parties to an arbitration that their business and personal confidences will be kept. Despite its central importance, confidentiality cannot be assumed in all jurisdictions. Therefore, it is critical that arbitrators be fully informed about the legal and policy issues surrounding confidentiality to appropriately resolve disputes concerning those aspects of the arbitration that should, or should not, be confidential.
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 the form of a contract which is formulated much before the dispute 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.
In recent times, confidentiality has 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. 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 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 third party such as experts or witnesses. Section 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. 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 Vs. Confidentiality
The terms ‘privacy’ and ‘confidentiality’ had been used in arbitration interchangeably until the latter half of 20th century. While ‘privacy’ means that no third party can attend arbitral conferences and hearings, ‘confidentiality’ refers to the non-disclosure of specific information in public. Private hearings do not necessarily attach confidentiality obligations to the parties to arbitration. The general assumption that arbitration proceedings are both private and confidential stands corrected in the 21st century. Nevertheless, confidentiality is one of the primary reasons for arbitration being the preferred option for commercial dispute resolution.
While the private nature of the arbitration hearing is more widely accepted, confidentiality can be much more uncertain and confusing.
Confidentiality: Pros And Cons
While confidentiality may be beneficial to the parties to arbitration, there may arise cases where the disclosure of information is required for public accountability and the development of public law. This section of the project discusses the positive and negative aspects of confidentiality in international commercial arbitration.
Confidentiality is especially beneficial to big corporations that belong to the same community and share an understanding of applicable arbitration norms. These are parties with relatively equal bargaining and are more concerned with ‘saving face than with establishing judicial precedent.’ It allows the parties to hide sensitive information from the public that can be detrimental to their business. On the contrary, confidentiality has its drawbacks too. It is argued that powerful parties may take advantage of the closed-door atmosphere and confidential nature of the arbitration process to intimidate weaker parties. Confidentiality does not allow public access to information that may have some bearing on public interest. Thus, it will preclude the public from getting full information regarding a matter of concern, thereby hampering public interest. Another drawback of imposing confidentiality in arbitration proceedings is that it hinders the development of public law. Since arbitral awards are not generally published, the reasoning of the arbitrator/tribunal cannot be studied to incorporate in a subsequent arbitration proceeding. This may lead to situations where different decisions are given by arbitral tribunals involving similar facts and issues since the subsequent tribunal did not have a chance to study the previous tribunal’s decision. Although arbitral awards do not have a precedential value, the reasoning of arbitrators may be persuasive to other arbitrators faced with similar issues.
Judicial Perspective on Confidentiality
Various nations have different approaches to confidentiality, though some nations like to consider that confidentiality is implied as a concept within arbitration; however certain nations differ from this view.
These precedents extend confidentiality protection to only such cases where parties intended to keep information private. This led to non-uniform application of confidentiality principle to arbitrations globally. To clarify this, several jurisdictions came out with new arbitration laws and some arbitral institutions amended their rules.
No Implied Confidentiality
Bulgarian Foreign Trade Bank v. AI Trade Finance Inc
- United States
United States v. Panhandle E. Corp
G Aita v. A Ojjeh
Esso Australia Resources Ltd and Ors. v. Plowman (Minister for Energy and Minerals) &Ors
Jurisdictions Which Do Not Address Confidentiality
The UNCITRAL Model Law is silent on confidentiality, and many Model Law Jurisdictions do not subject parties to an obligation of confidentiality. Commonwealth countries which do not regulate confidentiality can be assumed to adopt the common law position, unless their national courts say otherwise. For example, the High Court of Australia in Esso Australia declared that there is no general rule of confidentiality, except a rule of privacy in the arbitration hearing, which was characterized as an incident of subject matter of the arbitration agreement rather than an implied term.
Non-commonwealth jurisdictions which do not regulate confidentiality may not recognize confidentiality as a rule, such as the United States and Sweden.
Institutional Rules On Confidentiality
Arbitral institutions similarly do not provide a uniform code on confidentiality. Some institutional rules have no express provisions on confidentiality (e.g. ICC Rules; UNCITRAL Rules; ICSID Rules) and even those rules which do provide for general confidentiality fail to regulate all aspects of confidentiality (e.g. LCIA Rules; Swiss Rules; AAA Rules; SIAC Rules). Till date, the most detailed institutional rule is Rule 35 of the 2013 SIAC Rules. In recognition of the danger of providing a closed list of exceptions, its revision from the 2010 Rules includes a new provision allowing the tribunal to make an order for disclosure in situations otherwise than as listed.
Confidentiality In India
India’s Arbitration and Conciliation Act, 1996 is silent on confidentiality in arbitration, although it contains an express provision governing confidentiality in conciliation proceedings. There has been no case law finding an implied duty of confidentiality, although the Supreme Court of India seems to suggest an implied duty in mediation proceedings. It may be that Indian courts follow the common law position, if the principles in Emmott are seen to be a doctrine of arbitration law widely accepted by national arbitration legislation. However, as this article has sought to illustrate, there is no national consensus on the duty of confidentiality or its exceptions. The confidentiality of arbitrations seated in India shall be provided for by institutional rules (such as Article 30 of the LCIA India Arbitration Rules), the arbitration agreement, or a procedural order.
Limitations Of Confidentiality
While the arbitral process is confidential, yet there are situations in which these processes must 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.
While it may be argued that arbitration is a private process with public consequences, the primary justification for confidentiality is party autonomy. If the parties agree to uphold confidentiality, then their choice should be respected since arbitration is a private process. As different nations and institutions follow varied approaches regarding confidentiality, it becomes very complicated if parties do not mention clearly which law or rules will govern their confidentiality obligation. Thus, to avoid any conflict, the parties should distinctly designate each law or rule applicable to each aspect of the arbitration agreement. Given the extensive realm of international commercial arbitration, there cannot be a uniform approach to confidentiality applicable to every jurisdiction since each country has its own specific considerations.