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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
The decisions of the Australian High Court in 19951 and the Swedish Supreme Court in 20002 dealt a blow to the assumption that confidentiality is an obvious and inherent part of international commercial arbitration. The immediate conclusion to be drawn from these decisions is that confidentiality cannot be taken for granted as an integral or implied part of an arbitration agreement.
This article will look at developments regarding confidentiality in international commercial arbitration over the last decade, with a view to providing parties and potential parties with advice on how best to ensure that the arbitral process will be confidential.
For years arbitration textbooks have considered it obvious that arbitration is confidential and private.3 Up until the late 1980s, the matter was not really debated but taken for granted as one of the principal advantages of arbitration over court procedures.
In England, case law development during the eighties suggested that arbitration is a private process of dispute resolution, to which confidentiality applies as an implied obligation arising out of the very nature of the arbitral process. However, it was stated that the duty of confidentiality is not absolute, but subject to limited qualifications or exceptions, such as consent, compulsion of law, disclosure by leave of the court or disclosure necessary for the purpose of protecting the legitimate interests of an arbitrating party.4
The position under French law seems to be similar to that under English law, namely that the principle of confidentiality is a droit supplétif , i.e. a rule that, in the absence of a specific law on the matter, is automatically applicable unless the parties have agreed otherwise.5
In the 1995 decision of the High Court of Australia in the Esso case, a majority of the Court rejected the prevailing English judicial view that a general duty of confidentiality [Page19:] existed in arbitration, albeit subject to limited exceptions and qualifications. In a special edition of Arbitration International devoted to the issue of confidentiality, the editorial6 described the decision as 'dramatic' and concluded that '[f]or common law systems, the logical strength of the High Court's reasoning suggests that a statutory remedy may be required for England and elsewhere' and that for arbitral institutions an express rule on confidentiality should be considered. For countries outside the common law tradition, it was suggested that 'arbitration practitioners might wish to prepare now to justify the legal basis for confidentiality under their respective legal systems, whether by contract, status, copyright or otherwise'. 7
In the wake of that 'dramatic' Australian decision came the Bulbank case in Sweden, which roller-coasted through three levels of the Swedish court system, sending shock-waves to all corners of the international arbitration community. This case also showed that three sets of judges with the same legal background could adopt three different lines of reasoning and in two instances come to diametrically opposed conclusions.
Arbitral proceedings were conducted in Stockholm between A.I. Trade Finance Inc. (AIT) and Bulgarian Foreign Trade Bank Ltd. (Bulbank), pursuant to the arbitration rules of the United Nations Economic Commission for Europe (the ECE Rules). The jurisdiction of the arbitral tribunal was challenged by Bulbank on the ground that no arbitration agreement existed between the parties. In an interim award the tribunal decided that it had jurisdiction to hear the case. On the initiative of AIT's counsel the interim award was then made public in Mealey's International Arbitration Report .
Having complained to the tribunal that the publication of the interim award constituted a material breach of contract which entitled Bulbank to repudiate the arbitration agreement, Bulbank requested the tribunal to declare the arbitration agreement null and void. The tribunal rejected this request and rendered its final award in the case.
After the final arbitral award had thus been rendered in favour of AIT, Bulbank challenged the award in the Stockholm City Court. It again claimed that the disclosure of the interim award constituted a material breach of the arbitration agreement between the parties, and it asked the Court to declare the final award invalid or to set it aside.
In its judgment the Stockholm City Court stated that confidentiality is an implied condition in an arbitration agreement which is silent on this point. Confidentiality must be considered to be a fundamental principle in arbitration. For this reason, the Court decided that nullification of the award was the most appropriate remedy. [Page20:]
Bulbank appealed to the Svea Court of Appeal, which concluded that neither the ECE Rules nor the Swedish Arbitration Act explicitly imposed a duty of confidentiality. It took the view that there was no duty of confidentiality under statute law nor as an implied condition of any arbitration agreement which is silent on this point. However, the Appeal Court held that confidentiality is an essential feature of arbitration. The Court did not agree that a commitment to confidentiality could be imposed on the parties only by an express contractual provision. Rather, it referred to a 'duty of loyalty' or good faith between the parties and stated that disclosure of information or documents relating to an arbitration could under certain circumstances be regarded as a breach of such duty.
The Appeal Court also made a distinction between the types of information made public. For example, information concerning the parties' business or progress of the case in dispute could be considered more worthy of protection than the fact that an arbitration between the parties is ongoing or procedural details of a general nature. It was stated that consideration should be given, amongst other things, to whether there were good reasons for the disclosure, to what extent the opposite party had been damaged by it, and, where applicable, whether the information had been disclosed in order to harm the opposite party.
It is especially noteworthy, as far as the relief claimed is concerned, that the Appeal Court held that the reimbursement of damages suffered was preferable to the invalidation of the arbitration agreement. For an arbitration agreement to be declared void, as with other civil legal contracts, it is necessary for a party to have been guilty of a substantial breach of contract. The Appeal Court concluded: 'Taking into account the far-reaching consequences of the cancellation of an arbitration agreement, such a right of cancellation must be given a very limited usage.'
In the circumstances of the case, the Appeal Court found that what had been made public mainly concerned procedural questions of a general nature. Therefore, the Court held that the 'duty of loyalty' had not been breached. As there were no grounds for cancelling the arbitration agreement, the arbitral award was upheld.
The Swedish Supreme Court decided to exercise its discretion to hear the case. It gave its decision in October 2000, declaring that there is no legal duty of confidentiality implied or inherent in an arbitration agreement.
The Supreme Court held that arbitration is based upon an agreement, from which it generally follows that the proceedings will be private. The statutory framework for arbitral proceedings does not change its contractual nature, but is there to give the procedure a certain stability and quality and is necessary to give the award legal consequences, for instance in relation to enforcement. However, the fact that arbitration is regulated by statute does not of itself put the parties under a legal commitment to confidentiality. [Page21:]
The private nature of arbitration will exclude any outsider from being present during the proceedings or receiving any of the documents produced during the proceedings. Also, arbitrators have to recognize confidentiality when performing their duties and counsel for the parties are restricted by professional rules. The Supreme Court recognized that many commercial enterprises prefer arbitration because the proceedings are not open to the public. The Court did not consider that there was necessarily any contradiction between this aspect and the right of a party to provide a third party with information about the arbitration.
In most instances both parties are interested in restricting the information provided to others, but that might not always be the case. The Court stated that an inferior party may wish to put pressure on a superior party by publicizing the dispute and there might be instances where a party will have a duty to provide information about a pending arbitration and its outcome.
However, to say that the parties normally recognize confidentiality is totally different from holding that there is a legal duty of confidentiality combined with legal sanctions - normally damages. What might cause such a legal duty to exist? Certainly not the legislation, which is silent on the subject. The new Swedish Arbitration Act 1999 does not provide for a duty of confidentiality, which would suggest that there is no such duty. Could it be that the duty of confidentiality arises from a generally accepted opinion? The Supreme Court did not find such an opinion to exist among lawyers, arbitrators and scholars. Surveying the international scene, it found international opinion to be divided and referred on the one hand to the Australian High Court case declaring that one of the parties to an arbitration could use information obtained from the arbitral proceedings in court proceedings outside the scope of the arbitration, and on the other hand to English and French cases upholding the general principle of confidentiality in arbitration.
There is probably no national legislation containing an express provision on confidentiality other than that of New Zealand, which, in 1996, enacted a new statute based upon the UNICITRAL Model Law but with a modification stating that the parties to an arbitration agreement shall be deemed to have agreed that they 'shall not publish, disclose or communicate any information relating to arbitral proceedings under the agreement or to an award made for those proceedings'.8 The same section of the new act does, however, state that publication or disclosure is allowed if 'contemplated by this Act'. There is already a New Zealand High Court decision qualifying the extent of confidentiality granted by the Act.9
LCIA The new Arbitration Rules of the London Court of International Arbitration (LCIA), effective as of 1998, cater extensively for confidentiality. Articles 19(4) and 30 provide for privacy of the hearings and the duty of the parties to keep the proceedings and associated documentary material (and the awards) confidential, except to the [Page22:] extent that disclosure may be required by legal duty or to protect a legal right. It would seem that these rules reflect the English judicial position referred to above.
ICC The 1998 ICC Rules of Arbitration provide that the arbitral tribunal may take measures to protect trade secrets and confidential information (Art. 20(7)) and lay down the principle that the hearings shall be private (Art. 21(3)). However, in my experience, ICC arbitrators sometimes propose that a confidentiality clause should be included in the terms of reference, which the parties often seem to be willing to accept. In addition, the Statutes (Art. 6) and the Internal Rules (Arts. 1 and 3(2)) of the International Court of Arbitration contain provisions relating to the confidential nature of the work of the Court and its Secretariat.
WIPO The WIPO Arbitration Rules of 1994 contain extensive provisions on confidentiality and privacy (Arts. 52-53 and 73-76), defining 'confidential information' and providing for hearings in private. Confidentiality applies to the existence of the arbitration, to disclosures made during the arbitration and to the award.
AAA The AAA International Arbitration Rules of 1999 provide that the hearings shall be private (Art. 20(4)), that the award may not be made public (Art. 27(4)) and that confidential information disclosed during the arbitration may not be divulged by the tribunal or the AAA administration (Art. 34). It would appear that the non-disclosure requirement is not imposed on the parties.
SCC The Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) simply provide that the SCC Institute and the arbitral tribunal should each keep the arbitration confidential (Arts. 9 and 20(3)). These provisions seem to be directed at the Institute and the tribunal rather than at the parties.
The conclusion to be drawn from the decisions of the Australian High Court and the Swedish Supreme Court is clearly that it must be for the parties to draft an appropriate arbitration clause setting out the extent and nature of the confidentiality obligations to apply to any future arbitration. The parties can no longer generally rely upon any implied legal duty of confidentiality. When drafting such a confidentiality clause, the parties (and their counsel) should consider whether it is the proceedings, the documents, the award and/or possibly even the very existence of the arbitration which should be confidential, and whether such information may nevertheless be made public in specified circumstances, such as enforcement proceedings, court challenges, compulsion of law, in compliance with stock exchange regulations, or to satisfy insurance providers, auditors and other parties for the purpose of protecting the legitimate interests of an arbitrating party. To avoid such a drastic consequence as repudiation of the arbitration agreement, as imposed by the Stockholm City Court in the Bulbank case, the clause might also need to address the issue of what sanctions shall follow in the event of breach.
It should be noted that a general contractual clause providing for confidentiality in relation to the contract as a whole may not be sufficient, particularly if that clause makes no particular reference to arbitration. Any special provisions should make express reference to, and be tailored towards, arbitration.[Page23:]
One can appreciate that the parties to a commercial contract will often see no need for an elaborate arbitration clause setting out the various aspects of confidentiality or an elaborate confidentiality agreement providing for these aspects. However, when a dispute arises, parties to commercial contracts would generally appear to be keen to preserve confidentiality if they have chosen arbitration as opposed to litigation.10 Given the parties' reluctance to elaborate on the confidentiality aspects of arbitration when entering into the commercial contract, it might be thought that they could agree on confidentiality and other procedural matters when the dispute arises. They and their counsel would no doubt benefit from the availability of standard rules and guidelines developed by the international arbitration community for this purpose.11
As a consequence of the Esso case, and in line with the suggestion in the Arbitration International editorial,12 the LCIA is the only arbitral institution to have introduced express confidentiality stipulations in its new rules. Neither the latest rules of ICC nor those of the SCC incorporate similar provisions. As a result of the outcome of the Swedish Bulbank case, the time has come for these and other arbitral institutions to develop and promote confidentiality rules which will apply to arbitrations conducted under their respective auspices. The presumption would then be that confidentiality is a fundamental principle of international commercial arbitration and one of the main advantages of arbitration as opposed to litigation.
Rather than awaiting the next revision of the current rules, I would like to propose a task for the ICC Commission on International Arbitration, the IBA Section on Business Law and/or other interested bodies, to develop a manual containing relevant contract clauses, rules and guidelines, directed at the international business community in general and the arbitration community in particular. Such a manual would raise the awareness of confidentiality as an issue and make it easier for parties to decide in specific situations (both before and after a dispute arises) whether or not and to what extent they wish to provide for confidentiality in relation to their arbitration proceedings.
1 Esso Australia Resources Ltd v. Plowman (Minister for Energy and Minerals) (1995) 128 ALR 391.
2 Case T 1881-99.
3 Privacy is concerned with the rights of persons other than the arbitrators, parties and witnesses to attend meetings and hearings and to know about the arbitration. Confidentiality is the obligation on the arbitrators and the parties not to divulge or give out information relating to the contents of the proceedings, documents or the award. See 'Expert Report of Dr Julian D. M. Lew (in Esso/BHP v. Plowman)' (1995) 11 Arbitration International 283 at 285.
4 P. Neill, 'Confidentiality in Arbitration' (1996) 12 Arbitration International 287 at 290.
5 'Expert Report of Stephen Bond Esq (in Esso/BHP v. Plowman)' (1995) 11 Arbitration International 273 at 277.
6 'The Decision of the High Court of Australia in Esso/BHP v. Plowman' (1995) 11 Arbitration International 231.
7 Ibid. at 231-232.
8 Arbitration Act 1996, s. 14.
9 David Williams, 'Arbitration and Dispute Resolution' [2000:1] New Zealand Law Review 1 at 1-3.
10 According to a statistical survey conducted in 1992 for the LCIA by the London Business School, confidentiality was listed as the most important perceived benefit of international commercial arbitration. See supra note 6.
11 A commendable effort was made by Jan Paulsson and Nigel Rawding in an article entitled 'The Trouble with Confidentiality' (1994) 5:1 ICC ICArb. Bull. 48, which contains a few examples of institutional rules and contractual clauses.
12 See supra note 6.