ARBITRATION CONFIDENTIALITY: AN UNSOLVED PROBLEM
Author: Shravani Gupta, III Year B.A.,LLB from University of Petroleum and Energy Studies, Dehradun.
The confidentiality of the procedures and the award is one of the key reasons why arbitration is preferred over litigation. It protects the parties' autonomy and shields them from negative publicity. However, due to unresolved issues such as whether confidentiality is implied in a commercial arbitration contract, whether witnesses are also bound by confidentiality, and whether privacy and confidentiality are synonymous, many international rules and national statutes do not address the issue of confidentiality. Some countries have resolved their disputes through legal judgements, while others have yet to do so. It is also maintained that confidentiality in arbitration processes often reduces openness, and that disclosure must be regulated in the public interest. There are a few ambiguous areas that need to be clarified.
Including the term 'confidentiality' in the benefits of international business arbitration has become usual practise. The purpose of including a secrecy clause in a contract or arbitration agreement is to protect the parties from prying eyes from the media, competitors, or even scavenging authorities. It also plays a crucial role in disputes regarding intellectual property rights and trade secrets, preserving the company's competitive position. However, this creates some moral and ethical problems about the meaning of arbitrational confidentiality, as well as the institutions' and parties' obligations regarding the meaning and limitation of arbitrational confidentiality.
The arbitration procedure is based on party autonomy, which means that both parties decide on the procedure and the circumstances in which arbitration is requested. In most cases, it takes the form of a contract that is drafted well in advance of the occurrence of the dispute. The "rules of the game," such as the applicable law, the arbitral seat, and the language of the proceedings, may also include a confidentiality clause.[i]
Even the UNCITRAL Model Code on International Commercial Arbitration does not include any provisions on the contentious subject of secrecy, leaving it up to the parties or arbitral procedures that they choose. Some relevant observations can be found in the UNCITRAL notes on Organizing Arbitral Proceedings. These are:[ii]
"There is no uniform response in national laws as to the extent to which participants in arbitration are obligated to maintain the secrecy of case-related information." Furthermore, parties who have agreed to arbitration rules or other provisions that do not clearly address the question of secrecy cannot trust that an implied commitment to confidentiality will be recognised by all countries."
The Importance Of Confidentiality In Arbitration
Confidentiality has received a lot of attention recently when it comes to resolving disputes through arbitration. The main reasons for this are: first, certain parties do not want to express certain claims in public, such as misrepresentation, incompetence, a lack of financial resources, and so on[iii].
Second, secrecy shields trade secrets and other sensitive corporate information from the general public and competitors. Third, in some situations, the parties may wish to take a particular position privately, but if the procedures are conducted publicly, they will be forced to take a different position. This may happen, for example, with the government, which is a disputable party yet is accountable to the electorate for its activities. Though the government may choose to adopt a different stance, it may enrage the people in his district. As a result, in such circumstances, arbitration confidentiality is crucial.
Three key parties are necessary to participate in arbitration proceedings: the disputing parties, the arbitrator, and any other third parties such as experts or witnesses. The arbitrator has an ethical duty of confidentiality, according to Section 9 of the International Bar Association –Ethics of Arbitrator. However, in the absence of an agreement to the contrary, third parties (experts, witnesses) are not bound in the same way[iv]. The parties' obligations may vary depending on the legislation of different countries or organisations. This is a serious issue because there are no clear instructions for third parties, and adequate regulations must be developed or the entire goal of arbitration would be defeated.
The Difference between Privacy And Confidentiality
The subject of whether privacy and confidentiality are identical or not has been discussed since the establishment of institutional rules on arbitration. To address this, it's important to distinguish between the terms "privacy of arbitral procedures" and "confidentiality of processes." In arbitral procedures, privacy means that no third party will be allowed to observe or have access to any information about the proceedings[v]. As a result, no information about the proceeding is shared with business partners, spouses, or shareholders. 'Confidentiality of procedures,' on the other hand, means that the arbitrators, parties in dispute, and witnesses must keep their oral statements, documents submitted in arbitration, and observations of the parties' or witnesses' conduct confidential. Despite the fact that these are two distinct phrases, they are corollaries because privacy is a concern for confidentiality. Without confidentiality, privacy will be worthless [vi].
The Judicial Perspective On Confidentiality
Varied countries have different approaches to confidentiality, however some countries believe that confidentiality is an implied principle in arbitration; nevertheless, other countries disagree.
No Implied Confidentiality
United States v. Panhandle E. Corp
In this case, Panhandle's federal government demanded information from a US corporation related to an ICC arbitration between Panhandle's subsidiary and an Algerian state oil company. Panhandle sought to prevent discovery, claiming that arbitration is by its very nature secret, and that disclosing the information would frustrate the parties' expectations. Until and unless the parties agree, the court held that there is no implied secrecy. Furthermore, the ICC Rules do not impose any confidentiality obligations on parties.
Esso Australia Resources Ltd and Ors. v. Plowman (Minister for Energy and Minerals) & Ors[viii]
The question in this case was whether an arbitrating party has a confidentiality obligation in relation to documents and information revealed in and for the purposes of a private arbitration. There was no distinction made by the court between secrecy and privacy. It stated that the privacy of arbitration exists to protect the confidentiality of disputes that the parties have agreed to subject to arbitration, and that any breach of confidentiality would jeopardise the parties' privacy.
On Confidentiality: Arbitration Institutions
The International Chamber of Commerce (ICC) is one of the most well-known and well-liked dispute-resolution agencies in the world. The ICC drafters studied the issue of confidentiality, but were unable to agree on a general obligation of confidentiality that would apply to all ICC arbitral procedure participants [ix]. The arbitral tribunal is allowed by the ICC Rules to "take measures for the protection of trade secrets or sensitive information [x]." As a result, the ICC Rules empower the parties, the court, and the agreement to resolve any confidentiality disagreement.
According to Art. 34 of the American Arbitration Association(AAA)-The American Arbitration Association o(AAA) International Arbitration Rules, "private material provided during the proceedings by the parties or witnesses shall not be disclosed by an arbitrator."[xi]
UNCITRAL (United Nations Commission on International Trade Law) — UNCITRAL Rules cover privacy but not confidentiality.[xii]
"An award shall not be made public without the consent of the parties," says Art 32.5.
The London Court of International Arbitration's (LCIA) Arbitration Rules- These are merely the regulations that explain confidentiality in depth. Unless the parties agree or the tribunal decides otherwise, all discussions and hearings are to be held in secret, according to Article 19. Furthermore, both the parties and the arbitrators have a presumption of confidentiality with respect to any papers or evidence throughout the procedures and the award under Art. 30.[xiii]
The International Centre for Settlement of Investment Disputes (ICSID) Rules are comparable to the UNCITRAL Rules in that they consider privacy to be an important aspect of arbitration but do not place a strong emphasis on secrecy. The tribunal's deliberations are kept secret and private by Rule 15.1. Furthermore, Rule 4.8 states that the centre may not publish the award unless all parties agree.[xiv]
In the Public Interest Disclosure
In some cases, it is critical to recognise the public interest and lift the "veil of confidentiality" for the greater good of the people. [xv] When the scenario involves a public company's financial state, for example, such a report should be made public. In the same way, if a party has a fiduciary obligation to another party, it is required to report any award against it. Shareholders, creditors, partners, or any other party with a legitimate interest in the parties' affairs should also be informed.
These matters of public interest should be examined before enacting any standard secrecy legislation, to ensure that the interests of all parties are protected. When the public's interest is at stake, partial transparency and partial confidentiality should be preserved.
Suggestions for resolving such disagreements while maintaining confidentiality:
When it comes to confidentiality, the following ideas have been offered in order to lessen the growing complexity as well as to resolve the ever-increasing secrecy conflict. The following are some suggestions:
Awards should be kept private and not disclosed to other parties unless both parties and the arbitrator agree, or if they fall into the "public domain" and harm the general public's interest. They should only be revealed in cases where In all private international arbitrations, it should be established a required clause that the names of the parties or the remedy sought should not be divulged to a third party unilaterally. It is necessary to create a regulating agency that would demand approval before revealing details about any arbitration procedure.
Confidentiality should not be left unanswered in international arbitration; rather, it should be codified properly. It is critical so that parties resolving disputes through arbitration understand the terms and conditions under which it operates rather than leaving it to the arbitrator's or courts' discretion.complying with legal obligations imposed on an arbitrating party or protecting a person's legal claim to a third party is critical.
Though awards cannot be made public, the legal rationale that led to the specific judgement should be disclosed on a limited number of websites. This could set a precedent for arbitrators in the future. The names of the parties involved in the disagreement should not be revealed.
Limitations Of Confidentiality
While the arbitral procedure is confidential, there are times when it is necessary for the parties to divulge it. In some cases, the parties may be required to report both the proceedings and the awards as part of their reporting obligations [xvi]. For example, in the United Kingdom, the Disclosure Rules compel firms listed on the main list to report any information that, if made public, would likely affect the company's stock price. Similarly, in the United States, the Securities and Exchange Commission's (SEC) Rules and Financial [xvii] Regulation may mandate disclosure of relevant arbitration procedures in which the company is defending as well as those in which it is a complaint. [xviii]
Despite the fact that anonymity is one of the primary reasons why arbitration has grown in popularity in recent years, there are still some unanswered problems. For example, whether confidentiality should be preserved or greater emphasis placed on transparency. As a result, establishing a middle ground to some extent may help achieve a balance between the two. Furthermore, it should not be forgotten that the feature of confidentiality is a fundamental reason why arbitration is favoured over judicial proceedings. Because the majority of countries lack a written law, there is a grey area. As a result, it is critical that arbitral institutions as well as national laws be improved in order to clarify the ambiguity in secrecy.
[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] 118 F.D.R 346 (D. Del 1988).
[viii] (1995)128 A.L.R 39.
[ix]W. Lawrence Craig ET Al., International Chambers of Commerce Arbitration 311(3d ed. 2000).
[x]International Chamber of Commerce, Rules of Arbitration, Art . 21.3 (effective 1 January 1988).
[xi] The American Arbitration Association, International Arbitration Rules, Art. 34 (Effective 1 November 2000).
[xiii]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.
[xiv]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).
[xv] 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.
[xvi]Muhammad Kamal Hassan, Effects Implications and Repurcussions of the Connundrum Of Arbitral Confidentiality in International Commercial Arbitration.
[xvii]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.