Author: Megha Chaturvedi*
| Jurisdictions: | Topics: |
“Do I believe in arbitration? I do. But not in arbitration between the lion and the lamb, in which the lamb is in the morning found inside the lion.”
—Samuel Gompers
INTRODUCTION
The contractual preconditions to arbitration decide the fairness of the procedure adopted by the Tribunal, but confidentiality is one of those founding principles of arbitration which ensures its fairness and legitimacy. The principle of confidentiality is so deeply rooted in the concept of arbitration that it becomes integral to its definition and is often used to differentiate the procedure and concept of arbitration from that of the traditional litigation system. Thus, the term “confidentiality” is considered the foremost principle by Alternative Dispute Resolution Methods practitioners. However, recent arguments alleging that the confidentiality principle undermines the legitimacy of the process have led to a debate on global ADR platforms. Thus, this post aims to make an in-depth analysis of the principle of confidentiality, aiming to recognize it as the instrumental right of parties that determines the legitimacy of the Arbitral process, and it remains to be the golden principle of International Commercial Arbitration.
Before determining the principle of “Confidentiality,” it is advertent to understand its meaning. Black’s Law Dictionary defines “confidential” as “entrusted with the confidence of another or with his secret affairs or purposes; intended to be held in confidence or kept secret.” Similarly, according to Merriam-Webster, confidentiality means “Private, Secret.” The terms “Privacy” and “Confidentiality” were used interchangeably in arbitration until the latter half of the 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 the arbitration. The general assumption that arbitration proceedings are private and confidential stands corrected in the 21st century.[1] The case Emmott v. Michael Wilson & Partners Ltd.[2] made a distinction between confidentiality and privacy. Commenting on this, Lawrence Collins LJ observed, “[a]rbitration proceeding is private in the sense that privacy would be violated by the publication or dissemination of documents deployed in the arbitration; there is an inherent confidentiality in the documents.”[3]
Nonetheless, one of the primary reasons for preferring commercial arbitration by parties remains the rule of “confidentiality.” Considering the nature of the dispute, detailed commercial documents, and information that parties exchange in an arbitration, the rule of confidentiality aims to protect the sensitive information, trade secrets, and intellectual property which may be the subject matter of an arbitration, as its disclosure may result in irreparable loss. For the foregoing reason, arbitration proceedings are generally considered confidential.
It is pertinent to observe that some nations and arbitral institutions note that implied confidentiality could not be assumed in arbitration proceedings, while others have followed the traditional approach to impose a duty on the arbitrators, parties, or both. The nature of arbitration proceedings and the extent of confidentiality is dependent upon the following:
- The seat of the arbitration and;
- The arbitral rules applicable to the arbitration.
The confidentiality issue is complicated due to the involvement of multiple actors (witnesses, translators, officials of the arbitral institution, etc.) in arbitration who, unlike the arbitrator(s) and parties, are not governed by the arbitral rules or arbitration agreement even though they have access to confidential information.[4]
Thus, there is no uniformity in the confidentiality principle‘s scope of application among countries and international arbitral institutions. However, many countries like India and the United Kingdom have explicit provisions for ensuring confidentiality in Arbitration proceedings. In Indian legislation, Section 42A of the Arbitration and Conciliation Act of 1996[5] provides that the arbitrator(s), the arbitral institution, and the parties to the arbitration proceedings will maintain confidentiality concerning the arbitration proceedings, and the only exception is the disclosure of the arbitral award for its implementation and enforcement.
In England, although there is no statutory regulation on confidentiality, the rule of confidentiality has always been regarded as vital to the arbitral process. The general assumption is that confidentiality takes effect as an implied term in the arbitration agreement between the parties. Though “confidentiality” as a rule and principle is not protected under the UNCITRAL Model Law on International Commercial Arbitration, which can be why there is no express legislative provision in most countries. Confidentiality has not been made mandatory under the UNCITRAL Model Law. On the contrary, party autonomy has been given a higher pedestal. Furthermore, the UNCITRAL Arbitration Rules also do not have any express provision dealing with confidentiality except for Article 32(v), which bars publishing the award without the parties’ consent.
Though most of the reputed and organized international arbitration institutions, while developing upon the procedure, have specifically recognized and protected the principle of “Confidentiality” in their code and rules, such as
- Rules of the London Court of International Arbitration (LCIA) – Articles 19(4), 30(1) and 30(3),
- The Rules of the Court of Arbitration of the International Chamber of Commerce (ICC) – Articles 21(3) and 28(2),
- The Arbitration Rules of the World Intellectual Property Organisation (WIPO) – Article 53(c), and;
- The UNCITRAL Rules – Articles 25(4) and 32(5)
- Rule 34.6 of the Singapore International Arbitration Centre.
Countries such as New Zealand, Peru, Scotland, and Australia have meticulous regulations on confidentiality. Similarly, in France, a legal amendment enacted in 2011 established the duty of confidentiality for domestic arbitration but not international commercial arbitration unless the parties consent. However, in the United States, the Federal Arbitration Act and the Uniform Arbitration Act adopted as a model by most States, do not impose confidentiality requirements.[6]
Because of such a lack of uniformity in legislation, confidentiality in arbitration procedures has become a debatable issue. However, while deliberating upon the stance of various state legislations and observing the court decisions, it can be firmly ascertained “whether the principle of confidentiality is a right of parties or not?’
“RULE OF CONFIDENTIALITY”: A RIGHT OR PROCEDURAL NORM
With the ongoing debate, it becomes essential to determine whether the rule of confidentiality is conferred as a right, i.e., power of privilege protected by statute/legislation, or is merely a procedural norm that may or may not be observed depending upon Tribunal or other factors. Let us try to understand the status of currently prevailing laws and court decisions in various parts of the globe. In England, as discussed before, the confidentiality rule has always been regarded as ultimately vital to the arbitral process. In the case of Dolling-Baker v. Merrett[7], the English Court has held that, as between the parties to an 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. Similarly, The Hong Kong Arbitration Ordinance (HKAO)[8] expressly imposed confidentiality in arbitration proceedings in 2011, mandating non-disclosure of any information pertaining to arbitral proceedings. Where parties do not agree on confidentiality measures, statutory restrictions will apply. The three exceptions are Mandatory legal disclosures necessary for enforcing a right and disclosure while challenging the arbitral award. Also, the Philippines Alternative Resolution Act 2004[9] promotes party autonomy in dispute resolution and explicitly provides confidentiality in arbitral proceedings. Courts can issue protective orders to prevent the disclosure of documents that are proven confidential.[10]
The UNCITRAL Model Law already allows the parties to the arbitration to incorporate a confidentiality clause in the arbitration agreement if they wish to do so. Similarly, In AAY v. AAZ,[11] the Singapore High Court opined that non-disclosure of parties’ identities amounted to the protection of confidentiality of arbitral proceedings. The High Court reiterated the respect for confidentiality in arbitration while considering sealing arbitration documents. It further affirmed that any question on the applicability of confidentiality in arbitration is a question of the very nature of the process. While observing that it is erroneous to presume that all information tendered during arbitration will remain confidential, the Court has held that the Parties have the autonomy to decide if they wish to disclose the details of arbitration and award.[12]
While a strong element of privacy is inherent in the arbitration process in the United States, the confidentiality of arbitral awards is not. The FAA[13] or other laws do not ascertain any level of confidentiality in the arbitration process, and absent an agreement among the parties, no laws require the parties to keep arbitration decisions confidential.[14] However, Section 2 of the FAA provides written agreements to arbitrate disputes over transactions involving interstate commerce that are “valid, irrevocable, and enforceable.”[15] Moreover, Section 2 consistently has been construed by the Supreme Court to create a “liberal federal policy favoring arbitration agreements.”[16] This policy requires the courts to adhere to a “broad principle of enforceability” concerning the terms of arbitration agreements, including confidentiality provisions.[17] In AT&T Mobility LLC v. Concepcion[18], The Supreme Court identified a confidentiality agreement as an example of a customized feature of an arbitration proceeding that should be enforced according to its term.
Therefore, taking into account various prevailing positions of law and court decisions and the fundamental nature of arbitration is that it is invoked by way of the arbitration agreement, thus, giving the autonomy to the parties to incorporate protection and the rule of confidentiality in the procedure. In such a situation, if the rule is violated, the amounts to breach and damages, thus the “rule of confidentiality” with developing times has taken the position of “right of parties” to an arbitration proceeding which is determined by the parties and can even be waived off as per their will and consent. This is why arbitration and other ADR mechanisms are preferred over the traditional litigation system due to principles such as self-determination and confidentiality, which gives the parties a sense of control and autonomy over the redressal mechanism. Now a question arises: Cab the “rule of confidentiality” inferred as the “right” of parties to an arbitration proceeding undermine the legitimacy of the dispute resolution process?
DETRIMENTAL FACTORS TO THE RULE OF CONFIDENTIALITY AND ITS ALLEGED UNDERMINING OF LEGITIMACY IN ARBITRATION PROCEDURE
At this stage, it becomes essential to analyze and comprehend why the “rule of confidentiality” is argued by my opponents to allegedly undermine the legitimacy of the Arbitration procedure. Three factors are absent in arbitration when the rule of confidentiality is applied: Public Access, Transparency, Disclosure, and Public Interest. These factors are essential while determining the legitimacy of any judicial or dispute resolution process.
To clarify, in the context of adjudication, public access deals with a citizen’s right to attend the proceedings. “Public access is linked to the notion of a political community. This implication is founded in its structure as an individual right, which presumes enforceability against a political structure.”[19] Similarly, like public access, transparency provides the right to attend proceedings only to interested parties. Thus, it has a narrower scope. Moreover, Disclosure obligations, by contrast, are principally directed at substantive information and are designed to benefit those receiving the relevant information.[20] The disclosed information may incidentally constrain the entities making disclosures, but its primary purpose is to enable recipients of the information to make strategic choices.
The last and perhaps the most important concept since the inception of states and governments is “public interest.” In some circumstances, arbitration involves public interest concerns. When the public interest is involved, it outweighs the interests of the parties in favor of the larger good of the people. Public interest can be even more of a concern in an investor-state dispute. The arbitration between the State and a foreign company creates a public interest issue. The citizens of the party state have an interest and a right to know how their government performs during the proceeding and the arbitration’s final outcome. In SD Myers, Inc v. Canada,[21] the UNCITRAL Tribunal observed that the general principles of confidentiality exist in a commercial arbitration agreement but not in an arbitration pursuant to the provisions of an International treaty. This is because a public interest component is involved in investment arbitration.[22]
RULE OF CONFIDENTIALITY VERSUS RULE OF TRANSPARENCY, PUBLIC ACCESS, AND DISCLOSURE
While deliberating on the rule of transparency, it is important to note how it has been formulated. The UNCITRAL adopted the Rules on Transparency in 2013. The Rules on Transparency are expressly drafted to apply only in certain situations, all requiring express or implied party consent (namely, through expressly agreeing to apply the rules or accepting to be bound by a treaty that imports the rules). Article 25(4) provides that “[h]earings shall be held in camera unless the parties agree otherwise,” and Article 32(5) provides that “[t]he award may be made public only with the consent of both parties.”[23]
Furthermore, The International Centre for Settlement of Investment Disputes (ICSID) also have similar rules wherein “[u]nless either party objects, the Tribunal, after consultation with the Secretary-General, may allow other persons, besides the parties, their agents, counsel and advocates, witnesses and experts during their testimony, and officers of the Tribunal, to attend or observe all or part of the hearings.”[24] The ICSID Rules state that the award will only be published with the parties’ consent.
However, the ICSID Rules favor openness and transparency, compared to the UNCITRAL Rules, which are expressly framed to preserve confidentiality over the core parts of the arbitration unless the parties agree otherwise. Transparency and public access are usually seen as a procedural norm or elaborated under “the rule of law” in various common law countries. However, they cannot outweigh a “right” or legal obligation entered into a contractual obligation by the parties’ willful consent.
In addressing the confidentiality of the hearing and the award, confidentiality and transparency are not equally weighted. The starting point is a presumptive attachment of confidentiality to the hearing and the award. There may be a departure from this starting position of confidentiality, but this can only occur with the parties’ consent. While party consent is a critical feature of all of these provisions, in principle, there is an essential distinction between confidentiality and the other provisions. The publication will not happen unless the parties consent to depart from the confidentiality default. Thus, to seek to apply the UNCITRAL Rules in the absence of this consent, because they represent the norm, is misguided.
The Rules on Transparency are intended to be a step forward in this area, not the default position under the UNCITRAL Rules, and one which (given the nature of the implications for the parties to an arbitration in which the Rules on Transparency are applied) requires some form of agreement by the parties to their application in order to allow the departure from this default position. Indeed, the fact that a special set of rules was created regarding transparency, which is expressly not incorporated unless the parties agree, makes it clear that there is no default transparency under the various Rules. If transparency of this scope and nature were already the norm or the accepted standard in investment arbitration, there would not have been any need for the Rules on Transparency to have been drafted and adopted in the first place.
Thus, the rule of transparency can never outweigh the parties’ right to confidential arbitrational proceedings, which may be consensually envisaged in an arbitration agreement.
EXCEPTIONS TO THE RULE OF CONFIDENTIALITY
In AAY v. AAZ,[25] it was held that there is an exception to the general principle of confidentiality where disclosure of information is reasonably necessary for the protection of the legitimate interests of an arbitration party.
- In sum, an examination of exceptions to confidentiality would probably still begin with a reference to the established categories, taking into account the context and circumstances of the case, including the nature of the document(s) sought to be disclosed, to whom disclosure is sought to be made, and for what purpose. Lawrence Collins LJ accepted at [107] [in Emmott]:
On the authorities as they now stand, the principal cases in which disclosure will be permissible are these: the first is where there is consent, express or implied; second, where there is an order or leave of the Court (but that does not mean that the Court has a general discretion to lift the obligation of confidentiality); third, where it is reasonably necessary for the protection of the legitimate interests of an arbitration party; fourth, where the interests of justice require disclosure, and also (perhaps) where the public interest requires disclosure.[26]
Thus, as no right is absolute, similarly as discussed before, the rule or right of parties to confidential proceedings might be outweighed for public interest and especially in Investor-State arbitrations, as State is one of the parties which is by political antecedents has a direct impact and representation by citizens of that State. Nevertheless, confidentiality does not seem to undermine the legitimacy of the arbitration procedure in any manner, nor does it conflict with the public interest, as various courts have laid procedures and determined steps to ensure public interest while protecting confidential and secretive information wherever required.
CONCLUSION
When determining the rule of confidentiality as the “right of parties” to arbitration proceedings with only reasonable limitations like public interest while balancing both the right and protection of the public, it is important to understand further that whenever arbitration is invoked through an arbitration agreement, the arbitral Tribunal also cannot have an inherent power to do something that would be inconsistent (including implicitly) with the instrument under which that Tribunal is constituted. For example, the Tribunal in Heathrow Airport User Charges[27] held that its inherent powers did not extend to revisiting an award it had rendered. The Tribunal’s Rules of Procedure expressly provided for re-opening proceedings only before the award had been rendered, stating “the Tribunal cannot exercise any power the existence of which is inconsistent with the terms of the Parties’ agreement as a result of which alone the Tribunal has any being.”
Thus, the rule of confidentiality invariably stands and is further seen as a principle upholding the legitimacy of arbitration by allowing parties to formulate their rules and structure and further meet the ends of justice. If arbitration proceedings are repeatedly interfered with by the Court’s structure and rules of law, it will lose the essence for which it was initially developed.
*Megha Chaturvedi is an Indian Qualified Lawyer and is a registered member of Supreme Court Bar Association of India. She has practical experience in international settings dealing with matters from Investment & Commercial Arbitration law to Corporate, Regulatory Compliances, M&A and International Business Law. She is currently located in Vienna, Austria pursuing her Masters in International and European Business Law from University of Vienna, Austria and is remotely working as Associate handling Corporate matters in a Delhi based Law Firm, “H.K. Law Offices.”
[1] Samuel, M. et al. (2017) “Confidentiality in international commercial arbitration: Bedrock or window-dressing?,” Kluwer Arbitration Blog <https://arbitrationblog.kluwerarbitration.com/2017/02/21/confidentiality-international-commercial-arbitration-bedrock-window-dressing/? (Accessed: January 3, 2023).
[2] Emmott v. Wilson & Partners Limited, EWCA Civ 184 (2008) 1 Lloyd’s Rep 616.
[3] Ibid.
[4] Ibid.
[5] “42A. Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.” (2019 Amendment)
[6] Meza-Salas, M. et al. (2018) Confidentiality in international commercial arbitration: Truth or fiction?, Kluwer Arbitration Blog. Available at: https://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction/ (Accessed: December 15, 2022).
[7] Dolling-Baker v. Merrett, 1 WLR 1205 (1990).
[8] The Hong Kong Arbitration Ordinance (Cap. 609 of the Laws of Hong Kong), effective from 1 June 2011.
[9] Republic Act, No. 9285.
[10] Samuel, M. et al. (2017) “Confidentiality in international commercial arbitration: Bedrock or window-dressing?,” Kluwer Arbitration Blog <https://arbitrationblog.kluwerarbitration.com/2017/02/21/confidentiality-international-commercial-arbitration-bedrock-window-dressing/> (Accessed: January 3, 2023).
[11] AAY v. AAZ, SGHC 350 (2010).
[12] Ibid.
[13] See generally 9 U.S.C. §§ 1–16 (2022).
[14] See, e.g., AAA Statement of Ethical Principles, Am. Arb. Ass’n, https://www.adr.org/StatementofEthicalPrinciples (“The parties always have a right to disclose details of the proceeding, unless they have a separate confidentiality agreement.”); Bert K. Robinson, Arbitration: The Quest for Confidentiality, 58 La. B.J. 181 (2010), (“Absent statute or contract, there is no confidentiality attaching to arbitration.”);
[15] Section 2 of the FAA reads as follows: “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Federal Arbitration Act, 9 U.S.C. § 2 (2022).
[16] Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983); see also Volt Info. Scis., Inc. v. Bd. of Trustees of the Leland Stanford Junior Univ., 489 U.S. 468, 475–76 (1989)
[17] Southland Corp. v. Keating, 465 U.S. 1, 11 (1983)
[18] 563 U.S. 333, 344 (2011)
[19] Ronald Dworkin (1977), Taking Rights Seriously, 93 (Harvard University Press, 2nd edition).
[20] David Weil (2002), “The Benefits and Costs of Transparency: A Model of Disclosure-Based Regulation,” <http://ssm.com/abstract-316145> accessed at 20 December 2022, (Weil actually defines disclosure-based regulation as a form of transparency, but he is discussing the concepts outside the adjudicatory context, where such distinctions are less relevant.).
[21] SD Myers Inc v. Canada (Procedural Order No 16, 13 May 2000).
[22] Philip Morris Asia Ltd v. Australia (Procedural Order No. 5, 30 November 2012).
[23] G.A. Res.31/98 (Dec. 15, 1976).
[24] ICSID Rules of Procedure for Arbitration Proceedings (Arbitration Rules), Rule 32(2) (2006).
[25] AAY v. AAZ, SGHC 350 (2010).
[26] Ibid.
[27] Heathrow Airport User Charges, 102 ILR 564 (US-UK, 1993).