Confidentiality In International Commercial Arbitration Law International Essay

Published Date: 02 Nov 2017

Abstract: Many parties select arbitration as a dispute resolution process precisely to secure privacy and confidentiality [1] . Although confidentiality is perceived as one of the main advantages of arbitration as a dispute resolution system and mechanism, yet different jurisdictions recognise confidentiality differently, i.e. to varying extents, in spite of the fact that arbitration is a private agreement of parties to submit their dispute to it and as such it should be confidential in many of its aspects, i.e. for example in terms of the documents produced, or in terms of the award rendered, or in terms of the process of the arbitral hearing, etc. Moreover, confidentiality is not always preserved and its protection is often problematic in many stages. In light of the above observation this comparative research will examine the varying aspects of confidentiality in the legal systems of BRICS Nations i.e. Brazil, Russia, India, China and South Africa. These nations have been chosen because they constitute the most emerging economies of the present day world and hence they rely heavily on International Commercial Arbitration as a speedy and effective dispute resolution mechanism. It is believed that their examination will help better understand how confidentiality operates within arbitration, better address its problematic areas and propose ways to overcome those as well as lead the way forward, all in an effort to further promote arbitration.

Introduction

Much has been written about the duty of confidentiality [2] in international commercial arbitration. [3] Confidentiality is perhaps one of the fundamental, if not the most compelling, of reasons for which parties choose to arbitrate [4] . Arbitration proceedings are not conducted in public. However, the private character of the arbitration proceedings has not always implied that the concepts of confidentiality and privacy [5] are identical. [6] .

In 1995, the High Court of Australia rejected the common view that there is a general obligation of confidentiality in arbitration proceedings [7] . Since then, confidentiality in arbitration has been the subject of much heated debate. Although there has been an assumption that there is a duty of confidentiality, it normally does not rest on a statutory basis. Neither the national arbitration laws in most leading commercial nations, nor the UNCITRAL Model Law state that arbitration is confidential [8] . Thus, there is a disconnect between that presumption and the frequent realities of disclosure and publicity imposed by courts, arbitrators, and sometimes even the parties themselves. [9] 

Thus keeping in view the pivotal and key role that confidentiality plays in the successful practice of alternative dispute resolution, this article seeks to examine the different levels of protection and the different aspects and treatment of the concept of confidentiality in various jurisdictions.

2. The Judicial Approach towards the concept of Confidentiality A number of national courts around the world have considered the issue of confidentiality in arbitration. Unfortunately, the jurisprudence is sporadic and in-consistent [10] . The concept of confidentiality, which is not assumed anymore to be automatically applicable, has come under judicial attack, in a number of countries, such as in Australia, in Esso/B HP v Plowman [11] , or in Sweden, in Bulgarian Foreign Trade Bank Ltd. v A.L. Trade Finance Inc [12] . It is also to be noted that arbitral institutional rules, generally do not provide for any general duty of confidentiality [13] , and this means that confidentiality is, from the outset, to be treated only as a stochastic and relative concept in international commercial arbitration.

Courts will not always or easily accept the non-disclosure of information used in arbitral processes. The leading USA cases United States v. Panhandle Eastern Corp [14] . and Cont’ ship Container lines, Ltd. v. PPG Industries, Inc [15] , reflects this tendency of the courts to allow the disclosure of documents and information used in arbitrations. But, neither of these cases dealt with situations in which the parties had executed a confidentiality agreement. However, in Lawrence E. Jaffee Pension Plan v. Household International, Inc [16] , the parties had an explicit confidentiality provision in the arbitration agreement, and the court still compelled the production of arbitration communications as evidence .

We, therefore, note the unwillingness of the American courts to grant protective orders that prevent the introduction of arbitration communications, consistently with the longstanding judicial policy generally favouring the admissibility of evidence [17] . Courts in Australia [18] and Sweden [19] have followed the American approach and rejected a general implied duty of confidentiality.

In the Swedish case, A.I. Trade Finance Inc. v. Bulgarian Foreign Trade Bank Ltd. (Bulbank), the Swedish Court of Appeal held that there is no implied in law duty of confidentiality in arbitration. Rather, the court substituted a duty of loyalty and good faith, which would restrict disclosure of certain information pertaining to the arbitration, depending on the circumstances of the case.

Canadian courts have not yet decided the issue and the law is therefore not settled. Like most countries, Canada and its provinces do not have legislation that defines and regulates the scope of confidentiality in domestic or international arbitration.

In England, in Dolling-Baker v Merrett [20] , it was stated that, as between parties to arbitration, its very nature is such that there must be some implied obligation on both parties not to disclose or use for any other purpose, any documents prepared for and used in the arbitration [21] . In Hassneh Ins. Co. of Israel v Mew [22] it was stated that an obligation of confidentiality attaching to documents can exist only because it is implied in the agreement to arbitrate [23] and similarly Ali Shipping Corp. v. Shipyard "Trogir" [24] discussed the holdings in Dolling-Baker v Merrett [25] and in Hassneh Ins. Co. of Israel v Mew [26] on the implied duty of confidentiality created by arbitration agreements. Courts in France [27] have recognized a similar implied duty.

Thus, although parties assume that courts will honour confidentiality agreements, this is not always the case. In fact, "there has been no consensus of doctrinal views, and there have been differing judicial attitudes shown." [28] The bottom line is that parties' expectations about the privacy and confidentiality of their arbitral proceedings are often disappointed, or even negated by the courts. [29] 

3. The Present Status of Confidentiality in International Commercial Arbitration in the BRIC Jurisdictions

BRICS, originally "BRIC" before the inclusion of South Africa in 2010, is the title of an association of economies: Brazil, Russia, India, China and South Africa. [30] Â With the possible exception of Russia, [31] Â the BRICS members are all developing or newly industrialised countries, but they are distinguished by their large, fast-growing economies [32] Â and significant influence on regional and global affairs. As of 2013, the five BRICS countries represent almost 3 billion people, with a combined nominal GDP of US$14.8 trillion, [33] and an estimated US$4 trillion in combined foreign reserves. [34] 

International Commercial Arbitration assumes a pivotal significance in the BRICS nations in view of their increasing diversification in trade and commerce because a speedy and effective dispute resolution mechanism is the very backbone of the remarkable growth of these "Big Five" world economies.

As we have already seen, confidentiality is a very essential concept in International Commercial Arbitration. Hence we examine the status of this paramount concept in these BRICS nations.

3.1 Brazil

Arbitration in brazil is governed by the The Brazilian Arbitration Act which establishes that for a foreign arbitration award to be recognised and enforced in Brazil, it shall only be subject to the confirmation proceeding before the Superior Court of Justice (STJ). Brazil has ratified both the New York Convention and the Inter-American Convention on International Commercial Arbitration (the Panama Convention). Brazil is also a party to the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards (the Montevideo Convention), as well as the Geneva Protocol of 1923 on arbitration clauses. Finally, the confirmation of foreign arbitral awards rendered in member states of Mercosur (Brazil, Argentina, Uruguay and Paraguay) is regulated by the Protocol on Jurisdictional Assistance in Civil, Commercial, Labour and Administrative Matters, also known as the Las Leñas Protocol. Brazil is not a party to the Washington Convention that established the International Centre for the Settlement of Investment Disputes (ICSID).

The award does not have to be recognised by the foreign state’s judicial courts before being submitted to the STJ. The Brazilian Arbitration Act imposes the duty of confidentiality only on arbitrators and arbitral institutions. In addition, many arbitral institutions have established rules which preclude parties from disclosing information considered confidential.

3.2 Russia

Arbitration is the prevailing dispute resolution mechanism for foreign trade contracts, but has only limited application in domestic commerce in Russia. Russian arbitrazh (commercial) courts, part of the state judicial system, are quite effective in terms of cost and speed of proceedings. Therefore, the duration of proceedings and limited rights of appeal against arbitral awards are seen as disadvantages of arbitration. The relative confidentiality of arbitration and perceived better quality of adjudication are considered to be advantages.

The leading arbitral body in the Russian Federation (‘RF’) is the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the RF in Moscow (the ‘ICAC’).

The primary source of Russian domestic arbitration law is the Federal'nyj zakon N 102-FZ ‘O tretejskih sudah v Rossijskoj Federasii’. It does not apply to cases involving foreign parties, their subsidiaries or joint ventures. International commercial arbitration in the RF is governed by another statute: Zakon Rossijskoj Federasii N 5338-1 ‘O mezhdunarodnom kommercheskom arbitrazhe’. It follows the UNCITRAL Model Law almost verbatim. The 2006 amendments to the UNCITRAL Model Law have yet to be implemented.

The Code of Arbitrazh (Commercial) Procedure and the Code of Civil Procedure establish the procedural rules governing proceedings that are ancillary to commercial arbitration. Each permanent arbitral institution also has its own set of procedural rules.

There are no specific regulations on confidentiality in arbitral proceedings. However, confidentiality is considered to be a guiding principle in domestic arbitration. The law governing international commercial arbitration does not address the issue of confidentiality in international arbitration proceedings. Despite the lack of specific regulations, it is generally accepted that arbitration hearings are not open to the public. In addition, confidentiality provisions are frequently found in arbitration clauses (and as such are enforceable as a contract) and in the rules of arbitral tribunals [35] .

The issue relating to arbitral tribunal's power to protect trade secrets and confidential information is governed solely by the rules of the arbitral institutions and the agreement of the parties. A protective order may be sought from the arbitral tribunal pursuant to its general power to order interim measures of protection. Requests for protective orders are particularly common when the underlying contractual documentation contains a confidentiality clause which thus may be enforced.

3.3 India In India there is no express or implied obligation to treat an arbitration agreement, or proceedings arising from it, as confidential. If confidentiality is required, the parties' agreement must provide for it. However, it is doubtful that this agreement would be effective or binding in most disputes between large corporate entities or governments, which must act transparently. Section 75 of the Arbitration and Conciliation Act, 1996 clearly provides that: "Notwithstanding anything contained in any other law for the time being in force, the conciliator and the parties shall keep confidential all matter relating to the conciliation proceedings. Confidentiality shall extend also to the settlement agreement, except where its disclosure is necessary for purposes of implementation and enforcement."

Issues of confidentiality are also governed under the Indian Evidence Act(IEA), 1872. Under the IEA, no barrister, attorney or pleader shall be permitted to disclose any communication, advice or contents of a document made available in the course and for the purpose of employment, unless with the client’s express consent [36] .

3.4 China

On 2 December 1986 China elected to accede to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). The New York Convention became effective in China on 22 April 1987.

In acceding to the New York Convention, China adopted both the reciprocity reservation and the commercial reservation. The Arbitration Law of People’s Republic of China became effective on 1 September 1995, and was followed by a series of judicial interpretations of the law by the SPC. The Interpretation of the Supreme People’s Court concerning Some Issues on Application of the Arbitration law of the PRC (the 2006 Interpretation), effective as of 8 September 2006, is the most important interpretation.

China’s arbitration law is substantially different from the UNCITRAL Model Law, and generally provides for a lower level of party autonomy. Among other things:

an ad hoc arbitration, with its seat in Mainland China, will not be recognised according to China’s arbitration law (in other words, an arbitration provision is invalid under the law unless it identifies an arbitration institution to administer the arbitration);

China’s arbitration law only allows ‘foreign-related’ arbitrations to have their seats outside Mainland China. and

China’s arbitration law generally requires parties to choose arbitrators from lists provided by one of Chinese designated arbitration commissions.

The China International Economic and Trade Arbitration Commission (CIETAC) and China Maritime Arbitration Commission (CMAC) are the two principal arbitration bodies that handle foreign-related arbitrations in China. 

China’s arbitration commissions provide guidelines as to the confidentiality of arbitrations. For example, article 3 6 of the CIETAC arbitration rules provides that the parties to any arbitration – as well as the lawyers, witnesses, interpreters, arbitrators, experts and staff member of the secretariat of the CIETAC – may not disclose any substantive or procedural matters of the arbitration to the outside world. Other foreign-related arbitral institutions in China have similar rules, but we recommend you consult the rules to be certain.

In addition to confidentiality, arbitrations in China are also private. In this regard, article 40 of the Arbitration Law of PRC provides that, unless the parties agree otherwise, arbitral proceedings are not open to the public. If the parties to an arbitration agree to a public hearing, the arbitration may proceed in public, except for those aspects concerning state secrets.

3.5 South Africa: There are four main arbitration bodies in South Africa: the Arbitration Foundation of South Africa (AFSA), the Association of Arbitrators (AOA), the Commission for Conciliation, Mediation and Arbitration (CCMA), and the recently formed Africa ADR (AADR). Arbitration in South Africa is governed by the Arbitration Act 42 of 1965 (the Act). This provides for the determination of disputes by arbitral tribunals through written arbitration agreements, and for the enforcement of the awards of these tribunals. The Act applies to all domestic and international arbitration proceedings in South Africa (where the South African court would have jurisdiction were it not for the written arbitration agreement).

The Act however, does not provide for confidentiality of either proceedings or award. Parties are advised to make provision for confidentiality in their arbitration clause.

3.5 The Treatment of Confidentiality by ICC Rules

Articles 1(1) and (2) of the ICC Court’s internal rules, provide that the sessions of the Court are confidential and open to its member and to the Secretariat, and that, by invitation by the Chairman, other persons, which must respect the confidential nature of the Court, may be invited to attend. The document s to be submitted, are selected by the Secretariat. The parties to the proceedings will not know what has been submitted to the IC C court, with respect to the decision sought. The ICC Court’s desire, for confidentiality, has to be balanced against the need for potential users of ICC arbitration to understand how the ICC Court and ICC arbitration function. However, the issue of confidentiality, with respect to arbitration extends beyond the issue of confidentiality of the proceedings of the ICC Court, although there also exists a consider able overlap. As regards the proceedings of the ICC Court , it publishes articles, regarding types of decisions, and trends, but without identifying the parties involved [37] .

4. Critical Assessment and Analysis of the Purpose of Arbitration and Its Interplay with Confidentiality

With the advent of Globalization, there has been a widespread expansion of trade and business which has undoubtedly contributed directly to the rapid and broad growth of international commercial arbitration.

As gaps in international arbitration’s capabilities have been identified, arbitral practices have evolved to fill them, and the result has positioned international arbitration as an efficient alternative to the perceived problems of domestic courts. In recent years, this evolutionary process has operated at an accelerated pace [38] .

With regards to confidentiality, as with numerous other considerations in the arbitral context, parties are generally free to tailor their agreements to fit specific needs and expectations. Courts generally enforce the terms of an arbitration agreement relating to confidentiality. Parties may include confidentiality provisions in arbitration agreements, because they appear to use arbitration as a means to resolve disputes or because they assume, often incorrectly, arbitration to be private and confidential [39] .

However as already seen there is a divergence of opinion between the national courts and arbitral institutions on the existence and scope of a duty of confidentiality which fosters uncertainty––the bane of international business transactions. [40] The "balkanization of the rules" over such issues as confidentiality requires businesspersons "to hire guides to explain the little differences," leading to enormous and wasteful expense [41] .

A solution is not likely to come from the courts, which are often bound by prior decisions and face competing incentives. On the one hand, upholding an implied duty of confidentiality may attract arbitrations and the business they bring to the host country [42] .

On the other hand, courts may view the confidentiality of arbitral materials as interfering with the search for truth in judicial proceedings. In addition, courts cannot easily enforce confidentiality duties or agreements, in part because damages are often nonexistent or difficult to prove. Nor can one count on national governments to step in and resolve their differences on this issue. Given the difficulties in getting the necessary consensus for even "modest treaties," [43] amending existing arbitral enforcement treaties like the New York Convention or entering into a new treaty is far from likely.

The confidentiality problem appears so pressing and intractable as to demand some sort of joint resolution, if only to prevent discontent with the arbitral process from becoming endemic. Because no one can be sure of the scope of confidentiality protections today, there is an urgent need for a uniform rule [44] .

Conclusion: Confidentiality, is indeed given as one of the reasons to arbitrate a dispute, instead of litigating it. An empirical analysis and study [45] , conducted by Dr Christi an B€uhring-Uhle, showed that, following "neutrality of the forum" and "international enforcement by treaty", the third most important reason for choosing arbitration, is its confidential character and nature [46] .

There is, of course, something to be said, in favour of confidentiality as well as transparency. While the potential for amicable solution, is one of the elements speaking for confidentiality, there are others, of a more general nature, such as the wish to not make a dispute public at all, or to protect business secrets, which are also valid.

On the other hand, it is obvious, that, not only, do arbitral institutions publish, more than ever, about arbitration cases, or that the law firms, and the parties they represent, speak more about it, but that the entire arbitration "community", is far better connected, resulting in more informal "sanitized" exchange, on cases of interest . This, in turn, means that the balance, between confidentiality and transparency, seems to tilt slightly more in favour of transparency, and the need for determining the rig ht balance appears to be different, from case to case.

In addition, it is to be noted that, there are degrees of secrecy and confidentiality, depending on the function in question. At the one extreme, the intern al deliberations of the tribunal, are and should remain secret. At the other extreme, it is difficult, or even inappropriate in some circumstances , to keep the arbitral award itself confidential , such as in the case of enforcing the award in domestic courts, where, obviously, the award cannot be kept secret.

All the above apart, it is notable that the respect for the confidentiality of awards, has certainly increased over the years. The trend, towards maintaining a balance between confidentiality and transparency, is also understandable. In weighing the concepts of confidentiality against transparency, one may bear in view, that, much of the reporting, don e on arbitral proceedings, are not primarily made by the general media and with the intent ion of informing the public, as partly the case may be with major commercial litigation, but, rather, with the aim of keeping the professional circles informed of the developments. Further, the content of what is reported, of arbitral proceedings, is of some relevance. One gets the feeling that the intention, behind reporting of the arbitral developments, is to inform the professional circles, mostly, of the legal developments, rather than of detailed facts.

However, it should also be accepted that, very often, the publication or circulation of arbitral awards, is by those individuals, or parties, who have an interest in certain views or philosophies being seen to be accepted in international arbitration. In this respect , scientific legal papers or article s, may only be based on a small number of arbitral awards, that have come into the public domain. It may also be that there are other awards, that have rejected, or, at least, eschewed, a particular view or philosophy, but have not been circulated, because their circulation serves no particular interest or view, and, therefore, the available corpus of published arbitral awards, should not be seen, as the equivalent of a fully reported body of case law, from a state court system, where all judgments are available. Although the case law, on confidentiality, in commercial arbitration , has shown a disperse approach, in the treatment of the implied duty of confidentiality, nevertheless, it is accepted as essential that confidentiality be preserved, in certain situations, for business reasons, and, it is in this respect that, the courts attempt to create a safety net, in that they try to balance the public’s need for openness, and the individual’s need for confidentiality of sensitive information, and permit non-observance of confidentiality when the public interest demands it [47] .