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Published: Fri, 02 Feb 2018
Confidentiality and privacy
Confidentiality remains one of the most controversial topics in the arbitration since the 1980s.
Distinction should be made between the terms ‘confidentiality’ and ‘privacy’: the former concerns with the obligation on the arbitrators and the parties not to divulge or give out information relating to the content of the proceedings, evidence and documents, addresses, transcripts of the hearings or the award, the latter concerns with the right of persons other than the arbitrators, parties and their necessary representatives and witnesses, to attend the arbitration hearing and to know about the arbitration means that the arbitral proceedings are closed to any third parties save for the express consent of the parties to arbitration.
‘Until the late 1980s, an unchallenged, unwritten and artificial assumption existed: the private nature of arbitral proceedings also obliged its participants to maintain the confidentiality of those proceedings without considering whether confidentiality itself was grounded in any legal right or obligation, nor establishing any nexus with the nature of the arbitral communications’.
The reasons why the issue stared to be actively discussed only after the late 1980s despite the fact that arbitration existed long time before have not been explored sufficiently. One of the reasons mentioned in literature is the statutory regulation of arbitration proceedings i.e. that until 1979 English courts retained an extensive degree of control over arbitral proceedings.
However, even almost 30 years since then there is still a lack of consensus on this issue with positions differing from recognizing the absolute duty of confidentiality in France and implied duty of confidentiality in England to rejection of existence of such duty in Australia, Sweden and US. Uncitral model law is silent!!
While such situation may have its advantages such as discouraging a carve-out of ‘hard and fast rules’ and providing flexibility to respond to the needs of a constantly evolving global economy the significant divergence in understanding and approaches to this important issue does not foster legal certainty and therefore can result in additional costs and burdens on the international business and arbitration participants.
[Only one similar thing – all jurisdictions will enforce obligation expressly provided in contract ]
The purpose of this dissertation is to examine what justifications are available for the divergent approaches in different jurisdictions and provide an answer to the question of whether confidentiality is a necessity or choice in the international commercial arbitration.
In the Chapter I we will discuss how the issue of confidentiality is approached in England, Australia, US, Sweden, France, in various institutional rules and UNCITRAL Model law and Rules. In Chaprter II we will evaluate discussed justifications in favour and against existence of implied/default duty of confidentiality
It is not our purpose to discuss choice of law issues applicable to the confidentiality obligations in the international commercial arbitration. Conflict of law issues.
We will not deal extensively with the confidentiality issues involving investor-state disputes.
A. Pro-confidentiality jurisdictions
In the most recent case on the issue of confidentiality in England Collins LJ noted that:
… In the last 20 years or so the English courts have had to consider the consequences of the privacy of the arbitral process and the scope of the obligations of confidentiality in several different contexts. It is apparent that the English jurisprudence on this subject (as distinct from the confidentiality of awards, which is much discussed in other countries) is much richer than that of any other important arbitration centre, and that it constitutes a major contribution to the development of the law of international arbitration.
As we will see from the cases below English law of confidentiality in arbitration was accurately described by Ioanna Thoma as coherent and fragmentary at the same time.
The Eastern Saga
The Eastern Saga was one of the first cases dealing with the issue although indirectly. In this case the court ordered that unless express consent is given by all the parties the arbitrators have no power to consolidate the hearings. One of the grounds for the decision was recognition by the court of the private nature of arbitration proceedings and that by signing the arbitration agreement the parties agree to submit to arbitration disputes only between them.
The general principle of confidentiality in arbitration under English law which might be said to represent the classical view was spelt six years later in Dolling-Baker . The plaintiff (insured) sought disclosure of the documents from the earlier arbitration between the first defendant (insurer) and other parties involving similar insurance policy under which the first defendant successfully avoided liability. The court concluded that the proper test that needs to be satisfied in order to allow the disclosure was not the mere relevance of the documents to the proceedings but that the requested disclosure has to be necessary for the fair disposal of the proceedings to which they related. The court rejected the plaintiff’s request since the disclosure was not necessary for the fair disposal of the issues. In deciding on this case the Court of Appeal held that the documents do not ‘constitute confidential documents in the sense that ‘confidentiality’ and ‘confidential’ documents have been used in the court’ but at the same time:
As between parties to an arbitration, although the proceedings are consensual and may thus be regarded as wholly voluntary, their very nature is such that there must, in my judgment, 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, or disclosed or produced in the course of the arbitration, or transcripts or notes of the evidence in the arbitration or the award, and indeed not to disclose in any other way what evidence had been given by any witness in the arbitration, save with the consent of the other party, or pursuant to an order or leave of the court.
Parker J, however, was careful in making a reservation that he did not intend to give a precise definition of the extent of the non-disclosure obligation. He continued with saying that the fact that a document is used in an arbitration does not confer on it any confidentiality or privilege which can be availed of in subsequent proceedings and in reaching the conclusion whether the disclosure is necessary for the fair disposal of the action the court should consider amongst other things if there are any other and possibly less costly ways of obtaining the information which is sought and which do not involve any breach of the implied undertaking.
Three years later in Hassneh Insurance Colman J relying on the principle of privacy and implied non-disclosure obligation established in Dolling-Baker stated that:
…if it be correct that there is at least an implied term in every agreement to arbitrate that the hearing shall be held in private, the requirement of privacy must in principle extend to documents which are created for the purpose of that hearing. The most obvious example is a note or transcript of the evidence. The disclosure to a third party of such documents would be almost equivalent to opening the door of the arbitration room to that third party. Similarly witness statements, being so closely related to the hearing, must be within the obligation of confidentiality. So also must outline submissions tendered to the arbitrator. If outline submissions, then so must pleadings be included.
Thus, the court held that since there exists an implied obligation of privacy there have to exist an obligation of confidentiality since privacy without confidentiality would be meaningless.
In recognizing that ‘some duty of confidence in respect of documents in the arbitration’ exists the court concluded that it shall not be absolute and disclosure could be allowed if it would be reasonably necessary for the establishment or protection of an arbitrating party’s legal rights against the third party. However, this exception relates only to the award and its reasons and does not cover pleadings, witness statements and transcripts.
Coleman J (the same judge as in Hassneh Insurance ) applying the ‘reasonable necessity’ test in Hassneh Insurance denied disclosure by the assured to other reinsurers of the arbitration award and its reasons against the leading reinsurer with a purpose to persuade them to accept liability. Coleman J considered that since the reinsurance agreements did not contain any provisions that the other reinsurers should be bound by the settlement with the leading reinsurer, the fact that disclosure could persuade reinsurers to accept liability was merely helpful but not sufficient, i.e. reasonably necessary, to establish or protect the defendant’s rights, therefore it did not satisfy the requirements of the test in Hassneh Insurance . This case established that disclosure of the award will be permitted when it is impossible to enforce the right sought to be enforced without the disclosure of the award. Thus, is seemed that the ‘reasonable necessity’ test was used to determine not only the existence but also the limits of the confidentiality duty.
London & Leeds Estates
Another exception to the obligation of confidentiality was developed in London & Leeds Estates . The plaintiff’s expert witness’s testimony was allegedly contradictory to other evidence given by him in the other proceedings. The respondents issued subpoenas to the plaintiff’s witness and the respondent’s witness to produce their proofs from the other proceedings. The plaintiff sought to set aside the subpoenas due to confidentiality obligation under the previous arbitration proceedings. The court ruled that there was a legitimate basis for allowing the disclosure to be made but only in the case where the evidence given by the same witness in different proceedings is divergent. The witness owes a duty of confidence to both parties in arbitration and not only to the party who engaged him and parties owe a duty of confidentiality to the witness as well, and arbitrators owe a duty of confidence to the parties. The considerations of justice and fair resolution of the dispute (public interest) outweigh the considerations of privacy and confidentiality.
Ali Shipping was decided after the Australian ‘earthquake’ decision in Esso Australia and is said to be a turning point in English case law signaling new approach to qualifying confidentiality as a term implied by law rather than by the reasonable necessity.
In this case the defendant was not allowed to disclose in the new arbitration commenced against the plaintiff’s sister companies evidence obtained in the previous arbitration involving the plaintiff. Although in effect the information would be disclosed to the companies with the same beneficial owner as the plaintiff the court held that the obligation of confidentiality is implied as a matter of law and not as a matter of reasonable necessity. Implied obligation of confidentiality shall be upheld unless identified exceptions (consent of the party, order and leave of the court given in case the test of ‘reasonable necessity’ is satisfied and when a witness of fact could be demonstrated to have given a ‘materially different’ version of events on a previous occasion) apply. No such exceptions were established in this case. The Court noted that ‘the boundaries of the obligations of confidence which thereby arise have yet to be delineated’.
The court did not consider it appropriate to follow the majority view of the High Court of Australia in Esso Australia , simply stating that the dissenting judgment of Toohey J. appeared to treat the law of privacy and confidentiality along lines similar to English law.
In AEGIS the court cast clear doubts on previous case law characterizing confidentiality as a legal duty implied in arbitration agreements and acknowledged the existence of different types of confidentiality.
The plaintiff appealed against the decision of the court permitting the defendant to disclose to the arbitral tribunal the award issued by another arbitral tribunal in the earlier arbitration between the plaintiff and the defendant under the same arbitration agreement. In this case an express confidentiality agreement was executed between the parties.
In delivering the judgment Lord Hobhouse of Woodborough J stated that the confidentiality provisions in the agreement between parties ‘have to be evaluated having regard to the surrounding circumstances in which this confidentiality agreement was made and the basic principles and purpose of arbitration.’ After taking into account the mentioned elements the court allowed to produce in the second arbitration the award from the first arbitration.
An obiter criticism of the reasoning in Ali Shipping can be found in AEGIS in a sense that it disagreed with formulation of duty of confidentiality as an implied term since it runs the risk of failing to distinguish between the different types of confidentiality which attach to the different types of document or to documents which have been obtained in different ways and does not deal with confidentiality and privacy.
… an award may have to be referred to for accounting purposes or for the purpose of legal proceedings (as Aegis referred to it for the purposes of the present injunction proceedings) or for the purposes of enforcing the rights which the award confers (as European Re seek to do in the Rowe arbitration). Generalisations and the formulation of detailed implied terms are not appropriate.
Thoma commented that AEGIS approach signaled an important shift from the formalistic understanding of confidentiality as a term implied in fact or by law to a less stringent approach. She noted that the very classification of confidentiality as an implied contractual term seems dysfunctional in view of the numerous exceptions acknowledged by the courts and the different kinds of confidentiality attached to the various stages of arbitration. In this respect, while the contractual construction of confidentiality promotes certainty as far as the expectations of the business community are concerned, this sort of foreseeability can be equally guaranteed via more flexible approaches, as later decision has shown.
Emmott is the most recent English case on the issue of confidentiality which in general followed the principles established in previous cases but observed that ‘the content of the obligation may depend on the context in which it arises and on the nature of the information or documents at issue.…The limits of that obligation are still in the process of development on a case-by-case basis’.
The facts of the case concerned the arbitration proceedings brought by the plaintiff in London where the defendant (former director and senior lawyer of the plaintiff in Kazakhstan) was accused of fraud. Simultaneously the plaintiff brought legal proceedings against the defendant and some of its former employees in the courts of different jurisdictions. Later the allegations of fraud regarding the plaintiff were withdrawn in the London arbitration and the defendant sought and obtained a court’s permission to disclose the documents produced in arbitration in the other legal proceedings in the interests of justice, i.e. to prevent the two connected legal actions to proceed on a contradictory basis. The plaintiff appealed. The court rejected the plaintiff’s appeal while acknowledging that although the documents in principle were subject to confidentiality obligation they as well were subject to the two possible exceptions: ‘reasonable necessity’ test ( Hassneh Insurance ) and public interest ( London & Leeds Estates ).
Three concepts of confidentiality were distinguished in Emmott :
Privacy – privacy of arbitration which would be violated by the publication or dissemination of documents deployed in the arbitration of the arbitral process;
Inherent confidentiality – confidentiality of the information in documents, such as trade secrets or other confidential information generated or deployed in an arbitration; and
Implied confidentiality – an implied agreement that documents disclosed or generated in arbitration can only be used for the purposes of the arbitration.
In delivering the judgment Collins LJ mentioned that the implied obligation of confidentiality is in reality a substantive rule of arbitration law reached through the device of an implied term.
French position with regard to the confidentiality has long been that arbitration is confidential as a matter of principle. In Aita v Ojjeh (one of the very few French cases on this issue) the party was penalized for breaching the principle of confidentiality by bringing an action to annul an arbitration award rendered in London in the French court. However, the decision does not discuss the grounds on which the obligation of confidentiality is based and does not consider its limits.
The position under the French law is less clear now due to the recent decision in Nafimco , where the court rejected a claim for the breach of confidentiality since the plaintiff failed to establish that such obligation in fact exists under the French law.
In Aitah v. Ojjeh, the Paris Court of Appeal held that “it is in the very nature of
arbitration proceedings to ensure that the highest level of secrecy governs the
resolution of private disputes in accordance with the parties’ agreement.”5 This could
lead one to consider that confidentiality may be based upon the parties’ agreement,
even where such agreement is only implicit.
In order to avoid the application of the precedent in Esso Australia s. 14 of the New Zealand Arbitration Act was amended and now includes the provision that ‘an arbitration agreement, unless otherwise agreed by the parties, is deemed to provide that the parties shall not publish, disclose, or communicate any information relating to arbitral proceedings under the agreement or to an award made in those proceedings'(emphasis added). New Zealand is one of the few countries (others include Spain and Romania) where the duty of confidentiality has been codified.
B. Anti-confidentiality jurisdictions
The Australian court’s position in Esso Australia that no duty of confidentiality is implied in the agreement to submit the dispute to arbitration confidentiality is not in fact an essential feature of arbitration generated a giant wave of discussion on the nature and existence of the duty of confidentiality. The decision was characterized as ‘dramatic’ and of ‘significance far beyond the shores of Australia.
In this case two companies extracted natural gas and sold it to two public utilities. Under the sales agreements the price of the gas has to be adjusted with regard to the account charges relating to royalties and taxes attributable to the production and supply of gas. The new tax was introduced and the two companies sought an increase of price of supplied gas. When the public utilities did not agree with the price increase the dispute was referred to arbitration. The Minister for Energy and Minerals (the predecessor of the one of the buyers of the gas) brought an action against the sellers and the buyers seeking a declaration that any and all information disclosed during the arbitration should not be subject to any obligation of confidence. The companies, by way of counterclaim, sought declarations, based on implied terms, that each arbitration is to be conducted in private and that any documents or information supplied between the parties to arbitration in or for the purposes of arbitration are to be treated in confidence as between each such party and the arbitrators and umpire except for the purpose of the arbitration.
The primary judge ruled that ‘that the mere fact that parties to a dispute agree impliedly or expressly to have it arbitrated in private does not import any legal or equitable obligation not to disclose to third parties any information at all which may be said to have been obtained by virtue of or in the course of the arbitration’. The judge also concluded that there was no general legal or equitable obligation applicable to private arbitration which precluded a party to arbitration from using information obtained in the course of it except for the purposes of the arbitration. It was also considered that the court is able to protect a party (even to an arbitration) against misuse of information which has been obtained by virtue of the arbitration but the existence of power to restrain such misuse did not justify the making of the grant of relief in general terms such as was sought by the appellants in this case.
On the appeal the court, generally agreeing with the primary judge, in effect, held that:
There is no general obligation of confidence in arbitrations but by analogy with court-ordered discovery, an obligation of confidentiality ‘attaches only in relation to documents which are produced by a party compulsorily pursuant to a direction by the arbitrator’.
There is a distinction between the well-established private character of arbitration (in the sense that strangers are excluded) and confidentiality, the former did not necessarily entail the latter.
Mason CJ preferred to describe the private character of the hearing as something that ‘inheres in the subject-matter of the agreement to submit disputes to arbitration’ rather than attribute that character to an implied term since this view better accorded with the history of arbitrations. He cited Colman J from Hassneh Insurance , who noted that:
If the parties to an English law contract refer their disputes to arbitration they are entitled to assume at the least that the hearing will be conducted in private. That assumption arises from a practice which has been universal in London for hundreds of years and (is), I believe, undisputed. It is a practice which represents an important advantage of arbitration over the Courts as a means of dispute resolution. The informality attaching to a hearing held in private and the candour to which it may give rise is an essential ingredient of arbitration.
Mason CJ concluded that confidentiality was not an essential attribute of private arbitration imposing an obligation on each party not to disclose the proceedings, or documents and information provided in and for the purposes of arbitration and the obligation of confidentiality could not be implied in order to give the arbitration business efficacy, nor on the basis of custom and the following main reasons for such decision were:
Difference between privacy and confidentiality;
Possible disclosure of arbitration documents in a court action;
Dolling-Baker in 1990 was the first case to draw distinction between privacy and confidentiality. In confidentiality obligation had existed, it should have been judicially recognized and enforced long before 1990;
Several US and Australian cases decided in 1980s were inconsistent with or denied confidentiality.
Several experienced practitioners provided conflicting expert opinions on this issue;
Complete confidentiality cannot be achieved: no obligation of confidence attaches to witnesses, various circumstances in which arbitration awards come before the court, involving disclosure to the court of arbitration documents and publication of the court proceedings;
Parties are free to include a confidentiality provision in arbitration agreements by express language, but even if they did so, it would not bind third parties or witnesses.
With regard to the privacy Mason CJ noted:
Privacy, in the sense that strangers are not entitled to attend the hearing, went some distance, as a matter of practicality, in bringing about confidentiality. That was a feature of arbitration that made it attractive. There was, accordingly, a case for saying that, in the course of evolution, private arbitration had advanced to the stage where confidentiality had become one of its essential attributes, so that confidentiality is a characteristic or quality that inheres in arbitration. It followed, for the same reasons, that an obligation of confidentiality could not be implied as a matter of law. The implication of a term as a matter of law is made by reference to “the inherent nature of a contract and of the relationship thereby established”. Just as an obligation of confidentiality was not an essential attribute of arbitration, it was not inherent in the nature of an arbitration agreement.
Rejecting the Hassneh approach, Mason CJ found that an obligation of confidentiality could not be implied in order to give the arbitration business efficacy, nor on the basis of custom. The reasoning was on the same basis, i.e. for the above mentioned reasons, an arbitration agreement
In a partially dissenting judgment Toohey J made the following observations:
(1) arbitrations are to be conducted in private but on the basis of a term implied as a matter of law;
(2) privacy and confidentiality are, to a considerable extent, two sides of the same coin. The privacy of an arbitration hearing is not an end in itself; surely it exists only in order to maintain the confidentiality of the dispute which the parties have agreed to submit to arbitration;
(3) the fact the there was no English authority supporting a principle of confidentiality prior to Dolling-Baker was inconclusive and it was possible to infer from it the conclusion the such obligation was absent as well as that such obligation was universally accepted.
(4) the existence of confidentiality obligation can not be resolved in general terms. It is not possible to formulate a principle based on complete confidentiality or complete lack thereof. It is necessary to focus on particular categories of documents, against some background of principle.
(6) arbitrator’s award and reasons accompanying the award, in cases of enforcement or challenge to the award in the courts can be disclosed where it is reasonably necessary to do so to protect the interests of the party under the award.
(7) other documents and information produced in the arbitration should be protected by confidentiality obligation implied as a matter of law.
(8) there was a “public interest” exception to the principle.
In the US less attention has been given to the issues of privacy and confidentiality in arbitration.
Gary Born notes that those US lower courts that have addressed the issue, typically following scanty submissions, have been skeptical of claims that arbitral proceedings and submissions are generally or impliedly confidential, while indicating that express confidentiality agreements would be given effect.
In Panhandle , the US Federal government sought disclosure of all the documents produced in ICC arbitration in Switzerland between Panhandle’s subsidiary and the Algeria state oil company. The respondent sought to block discovery, arguing amongst other things that the Rules of the Court of Arbitration of the ICC require the arbitration documents to be kept confidential. The respondent also referred in its affidavit that there was a ‘general understanding’ by counsel to the arbitration that the pleading and related document s in the arbitration would be kept confidential.
However, the court rejected Panhandle’s submissions on the grounds that: the confidentiality provision in the ICC Rules was contained in the section “Internal Rules of the Court of arbitration’ and therefore should be applied only internally and that he general understanding reached by the counsel can not create any valid legal obligation since there was no any actual agreement of confidentiality.
The possibility of existence of some sort of an implied obligation of confidentiality in arbitration proceedings was not even considered by the court.
Leading Swedish Court judgment in Bulbank concerned the application by one of the parties to arbitration agreement seeking to annul the interim award which the other party made available to the arbitration journal on the grounds of the breach of an implied confidentiality term in the arbitration agreement.
In the court rejected argument that there exists an implied obligation of confidentiality in the arbitration agreement and held that parties who wish to preserve confidentiality must make an express provision in this regard in the arbitration agreement. The decision was made on the grounds that no confidentiality obligation was stipulated in the arbitration agreement, Swedish arbitration law or the arbitration rules by which the parties had agreed to be bound, nothing in the background of the case suggested that any agreement was reached in this regard. The Court acknowledged the private character of the arbitration hearings, but held that this fact does not mean that parties are obliged to keep the information regarding the arbitration proceedings confidential.
Hans Banger noted in this regard that the myth about the duty of confidentiality in arbitration fatally wounded in 1995 by the Australian High Court has now been laid to rest, at least in Sweden.
C. Institutional Rules
Majority of the institutional rules protect only the privacy of the arbitral proceedings and do not expressly deal with the confidentiality.
The UNCITRAL Arbitral Rules
Article 25(4) of the UNCITRAL Arbitral Rules provides that the hearings shall be held in camera unless the parties agree otherwise. Therefore, only the privacy of arbitral proceedings but not confidentiality is protected under the UNCITRAL Arbitral Rules.
The ICC Rules
The ICC Rules also protect only the privacy of the proceedings. Article 21(3) of the ICC Rules states that:
The Arbitral Tribunal shall be in full charge of the hearings, at which all the parties shall be entitled to be present. Save wit the approval of the Arbitral tribunal and the parties, persons not involved in the proceedings shall not be admitted.
Additionally the ICC Rules exclude ‘persons not involved in the proceedings’ from hearings and permit the arbitral tribunal to ‘take measures for protecting trade secrets and confidential information’.
However, the work of the ICC Court is protected by the confidentiality obligation which must be respected by everyone wh
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