Exploring Confidentiality in Arbitration: Navigating the Global Legislative Framework

Introduction

Arbitration is a widely recognized dispute resolution mechanism in which two parties through an agreement, voluntarily submit the dispute before a neutral third party called an arbitrator or a tribunal (where two or more arbitrators are involved ) wherein their decision is binding upon the parties. Instead of going to the court, the parties choose to resolve the dispute through arbitration because of the following characteristics:

1. It is a voluntary procedure.

Only with the consent of both parties may arbitration proceed. The parties include an arbitration clause in the pertinent contract for future disputes arising under it. A submission agreement between the parties can be used to send an ongoing dispute to arbitration. A side cannot unilaterally leave arbitration, unlike in mediation.[1]

2. Arbitration is neutral

In arbitration, the decision-maker for the dispute resolution process is an impartial third party. After hearing arguments from both sides and presenting pertinent information, the arbitrator makes a binding ruling[2]. The parties who are involved in the dispute can select the arbitrator together with whom they trust that he will not act in an unjust and biased manner.

3. Less expensive:

Since arbitration proceedings resolve disputes in a time-bound manner than usual court proceedings, parties need not spend huge amounts on years of litigation.

4. Binding decisions:

Unlike the usual court proceedings, the decision taken by the arbitrator or the tribunal is considered final.

5. Confidentiality:

Arbitration proceedings are usually held in private settings therefore the information shared for resolving the dispute and resolution can be kept confidential.

Out of all the principal characteristics, the confidentiality associated with arbitration proceedings makes it suitable for disputes involving sensitive data or private matters, including disputes related to Intellectual Property rights or  Commercial transactions related to prestigious projects, for which social reputation plays a huge role. Moreover, the confidentiality associated with arbitration proceedings is useful for anyone who would rather not wash their dirty linen in public.

Although confidentiality is associated with arbitration proceedings, the effectiveness of its implementation in real-life arbitrational proceedings is often questionable, owing to a variety of reasons. A popular misconception which persists in association with arbitration is that confidentiality is a natural corollary to arbitration. But more often than not it is not true, leading to detrimental effects on the commercial and reputational interests of the parties concerned. Since most of the arbitration proceedings are usually held in a private setting, wherein only the parties involved in the dispute are present, the privacy ensured through it is often equated with confidentiality. However, privacy and confidentiality are two different concepts and they protect the rights of the parties differently. Privacy does not always mean that parties cannot use documents communicated during the arbitration for other purposes or cannot disclose information regarding the arbitration. Instead, while the arbitration is continuing, the privacy of the procedures restricts who is allowed to attend and participate, but it does not control actions taken outside of the hearings.[3] Whereas confidentiality regulates whether or not the parties could disclose information related to the dispute, outside the proceedings.

Importance of Maintaining Confidentiality in Arbitration Proceedings

Confidentiality is one of the major reasons for parties to choose arbitration over litigation. By attempting to resolve disputes through arbitration, businesses can make use of the confidentiality associated with the proceedings to protect their sensitive business information, such as trade secrets, proprietary data, and strategic plans from public disclosure. Moreover, the privacy associated with arbitration proceedings helps businesses to escape public scrutiny.

Variations in Confidentiality Framework Across Jurisdictions.

One of the significant challenges we face when we try to enforce confidentiality in arbitration proceedings, particularly with respect to international disputes, is the difference in the level of confidentiality maintained across different legal jurisdictions. Although confidentiality is a hallmark of arbitration proceedings,  it is not equally enforced in every legal system.

In England, the Arbitration Act 1996 is silent on the issue of arbitral confidentiality. However, English courts have always maintained that arbitration involves an implied duty of confidentiality.[4].

US courts have been hesitant to acknowledge the presence of a broad implied duty of confidentiality in arbitration, in contrast to the English courts’ stance. While US courts consider confidentiality agreements in arbitration as common and enforceable, in the absence of such a confidentiality agreement, parties cannot expect the arbitration proceedings and the documents and information exchanged in arbitration to receive any special confidentiality protection.[5]

In Germany, while there is no express provision for confidentiality, neither the arbitral proceedings nor the hearings in the arbitration are public. Furthermore, arbitrators are barred from disclosing the tribunal’s deliberations, and the lawyers involved (be it as arbitrators or counsel) must comply with professional duties of confidentiality to which they are subject under German law.[6] Section 1042 para 3 CCP gives the parties the fundamental freedom to determine the form of the proceedings, including confidentiality of the arbitral proceedings, in accordance with the principle of party autonomy. Therefore, it is the responsibility of the parties to make a commitment to confidentiality in the arbitration agreement or in another document pertaining to the arbitration process. The agreement of the parties might be express or implied.[7]

Section 23C of the IAA provides confidentiality by default for arbitrations seated in Australia, with a few specific exceptions, such as where the parties expressly agree differently (sections 23D to 23G).[8]

The Arbitration and Conciliation Act of 1996 governs arbitration procedures in India.

Section 42 A [9]of the Act mandates the arbitrator, arbitration institute, and the parties to the arbitral agreement to maintain confidentiality with respect to all arbitral proceedings. However, this provision is subject to an exception which enables the disclosure of the arbitral award where it is necessary for it to be done so for the purpose of implementation or enforcement.

The conflict that exist in maintaining confidentiality across different legal jurisdictions can be managed to an extent by conducting arbitration in institutions. Different national and international arbitral institutes exercise confidentiality in varied nature and extent. Confidentiality is governed by many arbitration organizations, but mostly as a responsibility of the arbitrators and center employees. A duty of confidentiality for the parties is not often established by more explicit regulations or by arbitrators’ codes of ethics. Article 6 of Appendix I and Article 1 of Appendix II of the ICC Rules impose obligations solely on arbitrators and the staff of the International Court of Arbitration; the parties are not subject to these obligations. However, article 22.3 grants the Arbitral Tribunal the authority to issue orders pertaining to confidentiality upon request from any party.[10] 

The London Court of International Arbitration ensures the confidentiality of the proceedings, according to Article 30 of LCIA rules[11], by refusing to give any information about pending or completed proceedings to anyone other than the parties themselves or their legal representatives. This again is subjected to the exception, where a disclosure is required by any state courts or legal authorities, for the protection of any legal rights or the enforcement of the arbitral awards.

Enforcement of Arbitral Awards.

There may be situations in which information leaks to the public or is revealed to third parties, even in cases when the arbitration is required to remain confidential by national law or the arbitral agreement. The most common circumstances are where a party invokes a court’s supervisory powers in relation to the arbitration or seeks the court’s assistance with regard to the enforcement of an award. In certain situations, the public will likely learn of the arbitration’s existence, the identities of the parties, and perhaps even the award itself, according to the open justice principle.[12] In the 2021 English Case, Manchester City Foot Ball Club Ltd v Football Association Premier League Ltd and others[13], the English Court of Appeal decided in favour of publishing a High Court Judgement which upheld the enforcement of an arbitral award, stating that in the instant case, the necessity of publication outweighed the party’s desire to preserve confidentiality.

Disclosure in Arbitration Proceedings.

The procedure by which disputing parties reveal to one another relevant papers is known as disclosure. In this context, ‘documents’ encompasses hard copy and electronic documents such as hand-written notes, drawings, emails, voice recordings, and embedded data[14]. Document production is often very time-consuming and may lead to excessive costs. This stage of the process can be abused to pry into sensitive, irrelevant, or secret information about the other side, and it frequently results in contentious procedural arguments that might not even matter in the end. Arbitration procedures get more complicated as a result, and inefficiency results.[15] Disclosures made during arbitration proceedings could become an impediment to ensuring confidentiality. Therefore it is important to determine beforehand, all data that should be considered confidential and kept out of the ambit of disclosure, to the maximum extent possible, thereby producing only the documents or data which are indispensable for resolving the dispute.

Public Interest as an Exception to Confidentiality

Public Interest is often used by national and domestic courts to coerce parties in arbitration proceedings to disclose confidential information if the courts find that the general public has a legitimate interest in knowing about such information, especially if the parties involved are public authorities or the issue involved is of a public nature. A notable case involving this concept is the Chartered Institute of Arbitrators v BCD[16], in which the court ordered to use of certain documents from an arbitration in a disciplinary proceeding initiated against an arbitrator. In this case, the court applied a balancing test between the confidentiality that is to be maintained for arbitration and the legitimate public interest, wherein it was decided that the use of the documents in the disciplinary proceedings is in the general public Interest. The court stated that there was a general public interest in maintaining the quality and standards of arbitrators therefore the general public interest outweighed the desire of the parties to ensure confidentiality.

Challenges posed by Parties

To ensure that parties and their representatives adhere to the confidentiality as stipulated in arbitral agreements, there should be a high level of trust and compliance, which can be hard to guarantee. After a disagreement occurs, the parties are not required to agree on confidentiality. In fact, after a disagreement occurs, one of the parties may feel that a strict confidentiality undertaking is not in its best interests and may be reluctant to agree to include a confidentiality clause in the terms of reference.[17]In other cases, one of the parties may commit a breach of confidentiality, to gain media attention and thereby pressure the other party to come to an agreement, which they otherwise wouldn’t have done.

How to Ensure Confidentiality in Arbitration Proceedings?

As there does not exist a global uniform law for arbitration proceedings, parties may be faced with different kinds of challenges while trying to implement confidentiality. Although the concept of absolute confidentiality cannot be enforced, parties can mitigate any possible breach of confidentiality by taking some proactive measures. By entering into specifically drafted confidentiality agreements parties can regulate the level of confidentiality that is to be ensured throughout the proceedings. Through such agreements, the parties can decide on the purposes for which confidential information can be used or the persons to whom the confidential information could be disclosed if needed. The advantage of confidentiality is that parties can be as specific as they want when deciding upon all information that is brought into the scope of confidentiality.

Another way to ensure confidentiality is by attaining Confidentiality orders from courts. In the absence of any confidentiality agreements and if the concerned arbitration rules do not provide sufficient confidentiality protections, the parties can approach the arbitration tribunal and request to issue confidentiality orders to regulate the confidentiality that is to be ensured throughout the proceedings.

Additionally, by choosing the right seat of arbitration, or arbitration institutes having rules that best suit your interest, parties can protect their desire for confidentiality.

Conclusion

Maintaining confidentiality in arbitration is essential for protecting sensitive information and resolving disputes discreetly. Despite its crucial nature, enforcing confidentiality in arbitral proceedings is still a complex process, owing to the variations in confidentiality legislation across jurisdictions and arbitration institutes. While enforcing confidentiality is necessary, it is not absolute and could be subjected to exceptions arising from legal obligations.    Confidentiality can also be utilized by parties, by properly addressing the gaps and conflicting areas present in the global confidentiality framework. Ensuring confidentiality is the need of the hour to uphold the reliability of arbitration proceedings and thereby cater to the interests of the parties involved.

Reference(s):

[1]‘What is Arbitration?’ WIPO https://www.wipo.int/amc/en/arbitration/what-is-arb.html#:~:text=Arbitration%20is%20a%20procedure%20in,instead%20of%20going%20to%20court. Accessed 23.07.2024

[2]‘The Program on Negotiation’ Harward Law School https://www.pon.harvard.edu/tag/neutral-third-party/#:~:text=In%20arbitration%2C%20a%20neutral%20third,then%20renders%20a%20binding%20decision. Accessed 23.07.2024

[3] Young Seok Lee and Robert Wachter, ‘Confidentiality in International Arbitration: Including a Korean Law Perspective’, Dong-A Journal of International Business Transactions Law, Vol. I:2 (2010), pp. 65–66.

[4] Robert W Watcher, Grace Yoon, Min Yoon,  ‘Confidentiality in International IP Arbitration’(2022) Global Arbitration Review https://globalarbitrationreview.com/guide/the-guide-ip-arbitration/second-edition/article/confidentiality-in-international-ip-arbitration accessed 22.07.2024

[5] Id.

[6]Tilman Niedermaier, Marcus Weiler, ‘GUIDE TO ARBITRATION PLACES (GAP), GERMANY’ Delos Dispute Resolution https://delosdr.org/wp-content/uploads/2018/06/Delos-GAP-2nd-edn-Germany.pdf accessed 23.07.2024.

[7] Dr Styliani Ampatzi, Clara Burgmans ‘Confidentiality in Arbitration- The German Perspective’ (02.05.2023) Clyde & Co https://www.clydeco.com/en/insights/2023/05/confidentiality-in-arbitration-the-german-perspect accessed 24.07.2024

[8] Frank Bannon, Dale Brackin, Steve O’Reilly and Clive Luck Clayton Utz, ‘A busy year for arbitration in Australian Courts’ (06.052023) Global Arbitration Review

 https://globalarbitrationreview.com/review/the-asia-pacific-arbitration-review/2024/article/busy-year-arbitration-in-australian-courts accessed 24.07.2024.

[9] Arbitration and Conciliation Act 1996, s 42A

[10] Marlon Mesas- Salas, ‘Confidentiality in International Commercial Arbitration: Truth or Fiction?’ (23.09.2018) Kluwer Arbitration Blog< https://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction/> accessed 25.07.2024

[11] London Court of International Arbitration Rules, Art. 30

[12] John Olatunji, Dalal Alhouti ‘Confidentiality in Arbitration- A Cloak with Holes’(21.11.2023) Charles Russel Speechlys https://www.charlesrussellspeechlys.com/en/insights/expert-insights/dispute-resolution/2023/confidentiality-in-arbitration—a-cloak-with-holes/ accessed 24.07.2024

[13] Manchester City Foot Ball Club Ltd v Football Association Premier League Ltd and others [2021] EWHC 517 (Comm).

[14] ‘Disclosure in Arbitration’ Mayer Brown https://www.mayerbrown.com/-/media/files/news/2012/12/disclosure-in-arbitration/files/lexisnexis_2012_disclosure-in-arbitration/fileattachment/lexisnexis_2012_disclosure-in-arbitration.pdf accessed 22.07.2-24

[15] Jonatan Baier, Bernhard Meyer, Dominik Vock and  Emina Husic, ’Perspectives on Document Disclosure’ (03.10.2022) Global Arbitration Review  https://globalarbitrationreview.com/guide/the-guide-evidence-in-international-arbitration/1st-edition/article/perspectives-document-disclosure accessed 23.07.2024.

[16] Chartered Institute of Arbitrators v BCD [2019] EWHC 460 (Comm)

[17] Robert W Watcher, Grace Yoon, Min Yoon,  ‘Confidentiality in International IP Arbitration’(2022) Global Arbitration Review https://globalarbitrationreview.com/guide/the-guide-ip-arbitration/second-edition/article/confidentiality-in-international-ip-arbitration accessed 22nd  July 2024