Confidentiality Concern in International Commercial Arbitration

This Article focuses on the concept of confidentiality in International Commercial Arbitration. It also discusses the difference of this concept in different jurisdictions. This article also discusses the different measures used to ensure confidentiality. This article also refers to the relation of transparency and confidentiality in arbitration.

Introduction

Arbitration is a proceeding by which the parties are able to settle their dispute privately. In other words, arbitration is a private proceeding. The two things that are considered the benefits of arbitration are the nature of privacy and confidentiality that come with it. Though the meanings of the word privacy and confidentiality are interconnected they are two different concepts. The Arbitration proceedings are private in the sense that it is a closed process i.e.it precludes strangers from attending it, whereas confidentiality is not revealing the information involved in the process. These two are good reasons as to why companies prefer arbitration as a form of dispute resolution rather than judicial proceedings.

Confidentiality in Arbitration

Though the nature of confidentiality is a major advantage in arbitration, the extent to which       this confidentiality exits is rather debatable. Hence, confidentiality in the International Commercial Arbitration remains an unsettled issue. Confidentiality issues are likely to be faced by the parties to the suit in two stages. These are when producing evidence in favour of their case and when the opponent requests to produce evidence.

Over the years however, the arbitrators, counsel and parties involved have found means to protect the confidential nature of arbitration without affecting the impartiality and equality of the said process. As far as arbitration is concerned, in many jurisdictions’ confidentiality is an implied term of the agreement. The extent of such confidentiality is not same in all jurisdictions. Similarly, its interpretations are also not uniform in nature. The general duty of confidentiality is not without any limitations, it is not absolute in nature. Such limits are not just statutory limitations, but also the parties, while drafting their agreement, may realize they do not desire these confidential clauses and agreements to be without exceptions. They should take into consideration their other responsibilities towards third parties as well. For instance, they may need to reveal information about the award to the shareholders, insures, or parent company in case of subsidiaries [1]

Confidentiality in National Legislations and International Scenario with Regard to Confidentiality

Confidentiality in International Commercial Arbitration is not secure in most countries. This is most likely owing to the fact that the UNCITRAL Model Law on International Commercial Arbitration that is followed either in whole or in part by various countries, provides no specific provision in this regard. In the contrary, the laws in countries like New Zealand, Peru, Scotland, and Australia have thorough guidelines on confidentiality.

As mentioned before, the concept of confidentiality is treated differently in different jurisdictions. In England even though there is no statutory regulation on confidentiality for International Commercial Arbitration in Great Britain, there exists important case laws to protect the same. On the other hand, in the United States, the Federal Arbitration Act and the Uniform Arbitration Act accepted as a model by most of the States, does not inflict confidentiality requirements. In case of France, a legal amendment of 2011 recognized the duty of confidentiality for domestic arbitration, but not for International Commercial Arbitration unless the parties have agreed to it.[2]

England

In the past few years or so the English courts have had to contemplate the concerns of the privacy involved in the process of arbitration as well as the scope of the duty of confidentiality in several various perspectives. The English jurisprudence has immensely contributed to the development of the law of international arbitration. The English law of confidentiality in arbitration can be understood from the cases such as:

Oxford Shipping v. Nippon Yusen Kaisha[3], better known as the Eastern saga case. This case was among the first few cases to deal with the issue (indirectly). The Court in this case held that unless there was an expressed consent from all the parties involved the arbitration process, the arbitrators does not have any power to consolidate the hearing. One of the reasons for the Court to take such a decision was acknowledgement of the private nature of the process of arbitration and of the fact that by agreeing to the terms of the arbitration agreement the parties agree to settle disputes that arise between them by means of arbitration.

Ali Shipping Corp. v. Shipyard Trogir [4] In this case the Court held that a party to an arbitration is under an implied obligation of confidence to not make use of material generated during the process of the arbitration outside that arbitration. This judgement established that there is a general sense obligation of confidentiality in arbitration by the implications of law.

John Forster Emmott v. Michael Wilson & Partners Limited[5], In this case, the Court distinguished three concepts of confidentiality namely privacy which would be violated by the publication or distribution of documents used in the process of arbitration, inherent confidentiality which refers to information in documents such as a trade secret and implied confidentiality which is an implied agreement not to disclose the documents used in the arbitration process.

France

It can be observed that in the case of Nafimco v. Foster Wheeler Trading Company A.G [6]the French Court held that a party claiming damages for breach of confidentiality in an arbitral proceeding must prove the reason for alleged obligation of confidentiality. In other words, in France if parties settling disputes through the process of arbitration want such proceedings to be kept confidential, then it such obligation of confidentiality should be mentioned in the arbitration clause. Even then, if required in certain cases disclosure can still be obtained[7].

Sweden

There is no existence of a general obligation of confidentiality under the Swedish law in the process of arbitration. For such existence of confidentiality, it should be a specified in the part of the arbitration agreement entered into by the parties.

Singapore

The position regarding the confidentiality factor in arbitration and international arbitration is similar to that of the United Kingdom. There is no explicitly imposed obligation of confidentiality and at the same time there is exits limitations to the implied obligations. In the case of Myanma Yaung Chi Oo Co Ltd v Win Win Nu[8], the High Court of Singapore after relying on the judgement of the English Court in case of Ali Shipping Corp. v. Shipyard Trogir and the High Court held that the leave of the Court is not compulsory in conditions where disclosure of information is rationally essential for the protection of a party’s genuine interest.

There is no express provision provided under the UNCITRAL Model Law on International Commercial that deals with the concept of confidentiality with regard to arbitration. Instead of such expressed provision, it allows the parties involved in the process of arbitration to include such clause of confidentiality in the arbitration agreement if they require it. The UNCITRAL Arbitration Rules does not provide any expressed provision dealing with confidentiality except for Article 32(v) which bars the publishing of the award without the consent of the parties.

Since various countries, including India, having formulated their laws regarding with arbitration on the basis of the UNICTRAL Model Law and because it does not refer to confidentiality, the inclusion of the concept of confidentiality in arbitration differs in terms of its extent and scope throughout the world.[9]

Confidentiality Measures Used

Arbitration, as mentioned before, is preferred by parties due to its nature of privacy and confidentiality. At the same time, it is important that such process is fair and has some form of transparency. Even though the concept of obligation of confidentiality with regard to International arbitration is uncertain, various solutions has been adapted by the arbitrators and parties involved to ensure the same. There are confidentiality measures found in practice such as redaction of confidential information, restricted access to confidential information such as restricted reference in materials submitted by the parties, use of third parties and, specific measures arising with respect to testimonial evidence.[10]

Redaction of Confidential Information

It is a rather common measure taken for the purpose of confidentiality. Such a redaction may be in part or in whole or may even be just mere extracts from the document. It is proper when the material so redacted is immaterial to the outcome of the dispute. The real issue arises with regard to the need for the confidentiality of the material and its importance with regard to the dispute which is something that cannot be confirmed. Hence one of the solutions that is adopted is that tribunal would verify the document so redacted against the original one and determine as to whether such a redaction was appropriate. In cases where the information is extremely sensitive, the arbitrator suggests the verification of the documents be done by the administrative secretary by the arbitral tribunal with the consent of the parties

Restricted Access to Confidential Information

In cases where the disputes exist regarding the context or information, the redaction of such document may not be appropriate, and it may be more appropriate to restrict the access to such information[11]. There are different ways of restricting such information such as ‘Confidentiality clubs’, Return or destruction of documents, restricted inspection of confidential information, restricted references in written materials submitted for the purpose of arbitration.

Use of Third Parties

In cases where the matter involves very sensitive information and the dispute is involving such information and the concern is to give any persons involved in the arbitration proceeding access to such information, a more preferred solution is the involvement of a third party. This third person or neutral party may review such sensitive information and if the need arises determine certain issues with regard to the same.

Testimonial Evidence

In cases where a witness testifies to any evidence with regard to any confidential information either factual or expert, both the identity of such witness as well as the testimony made by the witness can be kept confidential.[12]

Transparency and Confidentiality

Transparency in any process increases the public interest is a concept that is gaining momentum in the growing world. The contention is can both co-exist and if so how to strike a balance between the two. By UNCITRAL Rules on Transparency in Treaty based Investor State Arbitration (2014)[13] discusses the application of the test “what to disclose” instead of “when to or to whom to disclose”[14]. The rules recommend more transparency so as to improve the public interest and to provide access to certain arbitral documents and at the same time to adequately safeguard the confidential information under the exceptions of the said rules.

A certain level of transparency in International arbitrations would be beneficial as it would bring more accountability on the arbitrators. A method of bringing transparency to arbitration can brought forth by publishing the arbitral awards, and in cases of any sensitive information, it may be published after the redaction of such information. Even though the judgements of the arbitrators are not as binding as the judgements made by courts, there would exist a great understanding from such decisions if the public had access to it. As mentioned before transparency is a concept that is encouraged but at the same time it should not compromise the confidential nature of arbitration. In other words, the existence of transparency should not affect the business interests of the parties involved.

Confidentiality in Arbitration Rules

Confidentiality is regulated by various arbitral institutions, but it is mostly as the duty of the arbitrators. They do not always establish an obligation of confidentiality to the parties involved. In the case of ICC Rules (International Chamber of Commerce) article 6 of Appendix I, and article 1 of Appendix II, enforce duties on arbitrators and the staff of the International Court of Arbitration, but not on the parties, but article 22.3 authorizes the Arbitral Tribunal to make orders regarding confidentiality on the request of any one of the parties involved.

 Similarly, it can also be seen in International Centre of Dispute Resolution rules of American Arbitration Association imposes obligation of confidentiality on the arbitrators and the Administrator. There is also a Code of Ethics that is applicable for both domestic arbitration as well as the International ICDR arbitrations. The UNICITRAL Arbitration Rules does not mention the obligation of confidentiality but it does recognise the implied confidentiality by means of the consent of both parties involved.[15]

India And the Concept of Confidentiality

In India, the Arbitration and Conciliation Act of 1996 observes the concept of confidentiality with regard to conciliation under Section 75 of the Act. By the 2019 Amendment bill, Section 42A was introduced. According to this section there is a duty of obligation imposed on the parties involved, i.e. the parties to the arbitration agreement, the arbitrator as well as the arbitral institution .The only exception to this obligation of confidentiality is when the award has to be disclosed for the purpose of setting aside or enforcement of such proceedings.

Drawbacks of Section 42A

By the Section 42A of the Arbitration and Conciliation Act, it can be notes that it only talks or observes the duty of confidentiality of the parties to the arbitration agreement, the arbitrator, and the arbitral institution. The provision does not discuss the obligation of confidentiality of any other people involved in the process such as a witness, or any other person who is a part of such arbitral proceeding.

By Section 42A of the Act, the only exception mentioned to the duty of obligation is when the award has to be disclosed for the purpose of setting aside or for the enforcement of the proceedings. It does not specify if this section is applicable for proceedings that arises from Sections such as 9, 34 etc. of the Arbitration Act. In short, this section does not bring light to what is recognised and what is protected under this Act. When one observes the various jurisdictions, the concept of confidentiality has different exceptions with regard to disclosing of document or protection of public interest etc. no such thing has been recognised under Section 42A of the Arbitration and Conciliation Act. Another drawback is that it is inconsistent with some laws in force including provisions under the Arbitration and Conciliation Act that requires the party to disclose information for purposes under provisions such as Section 9, 34 etc.

Conclusion

There is no single and uniform solution to maintaining confidentiality in arbitrations. As mentioned before in this article, various jurisdictions have different take on the obligation of confidentiality on domestic and international arbitration. It can be noted that the parties may decide the extent of confidentiality by including the same in the agreement entered by the parties. The arbitration clause should be drafted with caution to ensure the confidentiality and protect the interests of the parties. The concept of confidentiality varies in different jurisdictions and has thus caused a confusion in the understanding of the same. Statutory protection of confidentiality is allowed in countries like Hong Kong and New Zealand for Court hearings regarding arbitrary awards. In Countries like England and Singapore there is no explicitly imposed obligation of confidentiality and at the same time there is exits limitations to the implied obligations. In Countries like Sweden and United States, there exist no general duty of confidentiality. The concept of Confidentiality is rather new in India. Before the Amendment Bill of 2019 there did not exist any implied duty of confidentiality. Since the introduction of Section 42A this position has changed. Perhaps with time there shall be more developments in this field in India.

FAQs

What Is the Difference Between Privacy and Confidentiality in Arbitration?

The two things that are considered the benefits of arbitration are the nature of privacy and confidentiality that come with it. Though the meanings of the word privacy and confidentiality are interconnected they are two different concepts. The Arbitration proceedings are private in the sense that it is a closed process i.e.it precludes strangers from attending it, whereas confidentiality is not revealing the information involved in the process.

How Does the Concept of Confidentiality Differ in Different Jurisdictions?

Statutory protection of confidentiality is allowed in countries like Hong Kong and New Zealand for Court hearings regarding arbitrary awards. In Countries like England and Singapore there is no explicitly imposed obligation of confidentiality and at the same time there is exits limitations to the implied obligations. In Countries like Sweden and United States, there exist no general duty of confidentiality.

What Are the Different Measures Used to Maintain Confidentiality?

The confidentiality measures found in practice such as redaction of confidential information, restricted access to confidential information such as restricted reference in materials submitted by the parties, use of third parties and, specific measures arising with respect to testimonial evidence.

What Is the Position of India Regarding Confidentiality in Arbitration?

The concept of Confidentiality is rather new in India. Before the Amendment Bill of 2019 there did not exist any implied duty of confidentiality. Since the introduction of Section 42A this position has changed. According to this section there is a duty of obligation imposed on the parties to the arbitration agreement, the arbitrator and the arbitral institution .The only exception to this obligation of confidentiality is when the award has to be disclosed for the purpose of setting aside or enforcement of such proceedings.

What Are the Drawbacks of Section 42A Of the Arbitration Act?

The provision does not discuss the duty of confidentiality of people involved in the process such as a witness, or any other person who is a part of such arbitral proceeding besides the arbitrator the parties and the arbitral institution. This section does not bring light to what is recognised and what is protected under this Act .It is also inconsistent with some laws in force including provisions under the Arbitration and Conciliation Act that requires the party to disclose information for purposes under provisions such as Section 9, 34 etc.

References

Klaudia.Fabian. (2011, March 28). Confidentiality in International Commercial Arbitration To whom does the duty of Confidentiality extend in arbitration (Thesis ed.). CEU eTD collections.

http://arbitrationblog.kluwerarbitration.com/author/marlonms/ . (2018, September 20). Confidentiality in International Commercial Arbitration: Truth or Fiction? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction/ .

M.T.M.L. (2010, May 3). Expectations of confidentiality in international arbitration. Https://Www.Nixonpeabody.Com/ .https://www.nixonpeabody.com/en/ideas/articles/2010/05/03/expectations-of-confidentiality-in-international-arbitration#ref3/

Elliot. Geisinger. (n.d.). Confidential and Restricted access Information in International Arbitration. Www.Lalive.Law . Retrieved October 11, 2020, from https://www.lalive.law/data/publications/08-Chapter_4.pdf

UNCITRAL brings in new transparency rules with effect April 1, 2014 in treaty-based investor state arbitration’, http://www. nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/uncitral-brings-in-new-transparency-rules-with-effect-april-1-2014-in-treatybased-investor-state-a.html?no_cache=1&cHash=d1a716f314a5dc88c269b0a5f6eba054.

Desai, V. (2020, January 6). Changing Landscape of Confidentiality in International Arbitration. Litigation, Mediation & Arbitration – India. https://www.mondaq.com/india/arbitration-dispute-resolution/880678/changing-landscape-of-confidentiality-in-international-arbitration

http://arbitrationblog.kluwerarbitration.com/author/marlonms/. (2018, September 20). Confidentiality in International Commercial Arbitration: Truth or Fiction? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction


[1] Klaudia.Fabian. (2011, March 28). Confidentiality in International Commercial Arbitration To whom does the duty of Confidentiality extend in arbitration (Thesis ed.). CEU eTD collections.

[2] http://arbitrationblog.kluwerarbitration.com/author/marlonms/ . (2018, September 20). Confidentiality in International Commercial Arbitration: Truth or Fiction? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction/ .

[3] [1984] 2 Lloyd’s Rep. 373

[4] [1998] 2 All ER 136.

[5] [2008] EWCA Civ 184.

[6] 22 January 2004, Rev.Arb. 2004-646

[7] M.T.M.L. (2010, May 3). Expectations of confidentiality in international arbitration. Https://Www.Nixonpeabody.Com/. https://www.nixonpeabody.com/en/ideas/articles/2010/05/03/expectations-of-confidentiality-in-international-arbitration#ref3

[8] [2003] SGHC 124.

[9] http://arbitrationblog.kluwerarbitration.com/author/marlonms/ . (2018b, September 20). Confidentiality in International Commercial Arbitration: Truth or Fiction? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction/

[10] Elliot. Geisinger. (n.d.). Confidential and Restrcted access Information in International Arbitration. Www.Lalive.Law . Retrieved October 11, 2020, from https://www.lalive.law/data/publications/08-Chapter_4.pdf

[11] Ibid

[12] Elliot. Geisinger. (n.d.). Confidential and Restrcted access Information in International Arbitration. Www.Lalive.Law . Retrieved October 11, 2020, from https://www.lalive.law/data/publications/08-Chapter_4.pdf

[13] UNCITRAL brings in new transparency rules with effect April 1, 2014 in treaty-based investor state arbitration’, http://www. nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/uncitral-brings-in-new-transparency-rules-with-effect-april-1-2014-in-treatybased-investor-state-a.html?no_cache=1&cHash=d1a716f314a5dc88c269b0a5f6eba054 .

[14] Desai, V. (2020, January 6). Changing Landscape of Confidentiality in International Arbitration. Litigation, Mediation & Arbitration – India. https://www.mondaq.com/india/arbitration-dispute-resolution/880678/changing-landscape-of-confidentiality-in-international-arbitration

[15] http://arbitrationblog.kluwerarbitration.com/author/marlonms/. (2018, September 20). Confidentiality in International Commercial Arbitration: Truth or Fiction? Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction/

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