The Conflicting Stakes for Confidentiality in International Commercial Arbitration

Pratyush Nigam and Aditya Kishore*

INTRODUCTION

Confidentiality remains an essential part of the arbitral process. However, at times it becomes essential to disclose such information in general public interest. The authors, in this article discuss the vital role played by national legislations, modal laws, and international treaties in International Commercial Arbitration (ICA) and their stance vis-à-vis confidentiality. The lacunas in these legal strictures, surrounding confidentiality are also analyzed.

The authors in this article further explore the private nature of arbitration proceedings and its distinction with confidentiality. Thereafter, the divergent views taken by various countries, international conventions and treaties are also adhered to. The current position in India, after the new amendment is also discussed. The aim of this piece is to understand the importance given to safeguarding trade secrets, while at the same time also giving due importance to the ‘public interest’ exception. Hence, through this piece the authors try to discuss and thoroughly analyze the need for confidentiality; while at the same time acknowledging the conflict perpetuated by the public interest exception.

THE UNDERLYING SCHISM: PRIVACY V. CONFIDENTIALITY

Before dealing with the intricacies in ICA regarding confidentiality, we must first distinguish it with privacy. After referring to Article 26(3) of the International Chamber of Commerce Rules and Article 28(3) of UNCITRAL Arbitration Rules (‘UNCITRAL’), which states that persons not involved with the arbitration shall not be admitted in the hearings. Thus, one thing is settled, that ICA is a ‘private process’. However, people often erroneously believe that their disputes are confidential owing to the private nature of the proceedings. Privacy ensures that parties’ having no privity to the disputes do not attend the proceedings, but that does not ensure that information about the content of the proceedings is safe and shall not be disclosed.[1] Hence, the private aspect of arbitration is in no way connected to confidentiality. Confidentiality, however, remains vital in the arbitration process and including it in the arbitration agreement is a default practice. However, while privacy is codified in UNCITRAL, the vital confidential aspect still remains an unsettled area of law, which is discussed in the course of this paper.

THE NEED FOR CONFIDENTIALITY

The basic intent of the parties before entering into an arbitration agreement is to save themselves from the glaring eyes of the savaging media, competitors and at times, authorities. Further, the parties also refrain from imposing allegations pertaining to fraud, misrepresentation, misappropriation, incompetence, etc., in public.[2] Parties also strive to protect their trade secrets from their competitors. Owing to these concerns Article 9(3) of the International Bar Association Rules, entails that an arbitrator is ethically bound to not disclose the vital confidential information that has been discussed during the course of the arbitral proceedings. But the parties and witnesses are under no such obligation, or even a moral duty. Hence, there still are some lacunas in this concept that need to be resolved. Till then confidentiality remains a contentious issue.

CONFIDENTIALITY VIS-A-VIS INTERNATIONAL COMMERCIAL ARBITRATION

As discussed above, confidentiality remains a grey area in ICA. The model law of UNCITRAL by giving importance to the party’s autonomy,[3] is almost indifferent when it comes to confidentiality, as the drafters considered it proper to leave the decision regarding confidentiality to the parties. Due to this, enforcing confidentiality becomes very tough, even in disputes involving an absolute confidentiality commitment from both the parties.[4] Hence, confidentiality becomes contingent upon the facts of each case.

There, however, exists a concept of implied confidentiality which professes that the intent behind entering the arbitration proceedings is to safeguard the confidential information of the parties.[5]However, the recent trend does not reaffirm this classical concept. The contradictory case laws, Hassneh Insurance Co[6] and Esso Australia, discussed subsequently in this piece highlight the divergent approaches pertaining to implied confidentiality.

UNDERSTANDING CONFIDENTIALITY

As discussed above the UNCITRAL modal law envisages no express provision for confidentiality. This is true for Swiss Law on private International Law and the English Arbitration Act as well.[7] Such inconsistencies, both at the national and international level, are discussed henceforth. While it is true that different countries are supposed to have different legislations and set of rules, however, a thing as basic as confidentiality demands universality as is the case with privacy in ICA. Since, both the approaches only present half the picture, it becomes important to discuss and analyze them, so as to understand the complete picture.

INCONSISTENCIES AT THE INTERNATIONAL LEVEL

The Doha Declaration of November 2002 gave substantial focus to confidentiality.[8] As a response to the same, the European community advocated for more transparency while resolving international disputes.[9] This was further taken up by the USA which tabled a process envisaging a more openness in arbitral proceedings. Thereafter in 2003, a free trade agreement between the USA and Singapore was signed which contemplated an express provision of confidentiality while dealing with ‘investor-state’ arbitration. The USA in 2003 also signed an identical free trade agreement with Chile.[10] Such divergent views taken by the USA coupled with the non-compliance of the European Community to the Doha Declaration substantiates the inconsistencies at the international level vis-à-vis confidentiality and the same is also reflected in various national legislations discussed in the next subpart.

INCONSISTENCIES IN NATIONAL LEGISLATIONS

Before delving into the inconsistencies in various national legislations let us first understand the crucial role played by the statutes of the seat of the arbitration. International arbitration usually deals with more than one legal system.[11] Every arbitration agreement specifies a seat which basically is the country where the arbitration proceedings will take place.[12] The courts of this country have the power to hear the appeals against arbitration awards.[13]

Further, since the arbitration proceedings take place in a neutral country,[14] the lexarbitri, i.e. the domestic law of the seat of arbitration, will generally differ from the law that governs the dispute that is the governing law. It would hence, be illogical to assume that the lexarbitri will be the governing law.[15] For instance, if an Indian seller and English buyer have a dispute, with the seat of Arbitration in Singapore, the lexarbitri is Singapore; but it is not by default the ‘governing law’, which again can be Indian law, English Law or some other law. This essentially means that domestic laws are, in fact, rooted in ICA.

Coming back to confidentiality, countries like Romania, New Zealand, Spain, by modifying their version of UNCITRAL laws, have included statutory provisions mandating confidentiality. Au Contraire countries like Costa Rica and Norway have statutory provisions permitting the publication of arbitral awards. India, while acknowledging confidentiality, amended its Arbitration and Conciliation Act, 1996. However, there still are certain lacunas in the amendment that are discussed in detail below.

THE POSITION IN INDIA

Section 42A of the Arbitration and Conciliation (Amendment) Act, 2019 (‘our act’) imposes an obligation of confidentiality upon the parties, the arbitrator, and the Arbitral Institution. However, this section ignores some entities which might leak the confidential information. This includes witnesses, transcribers, third party funders, etc. Further, there are no consequences for non-compliance of this section, which makes it directory and non-binding in nature.[16]

Section 42A also craves a limited exception pertaining to the enforcement of an arbitral award. It manifestly ignores the public interest exception, discussed subsequently in this piece. Further Section 43K of the Arbitration and Conciliation Act mandates the Arbitration Council of India to maintain an electronic depository of arbitral awards. This is in direct contravention with Section 42A.  Hence, there still are some hurdles in ensuring the intended effect of the amended act. The courts’ approach while interpreting and enforcing this Section will indeed be interesting to see.

THE TREND ACROSS VARIOUS JURISDICTIONS

The U.K., France and Singapore have acknowledged an implied obligation of confidentiality upon the parties. Further, Romania, Spain and New Zealand have also codified confidentiality obligations. Such an implied obligation, however, is not recognized by countries like the USA and Australia.

In the English case of Hassaneh Insurance Co. of Isrealv. Stuart J Mew[17] the court held that confidentiality is implied under all arbitration agreements. Further in the case of Ali Shipping Corporation v. Shipyard Trogir[18] the court held that the confidentiality rule has been founded fairly and hence, no material generated in arbitration proceedings should go out of the four walls of arbitration. In the case of Myanma Yaung Chi Oo Co. Ltd v. Win Win Nu the same approach was followed by the Singapore court. Further, the French court in the case of Aita v. Oggah[19], slammed a fine upon the party for violating the confidentiality rule. However, such approach envisaging implied obligations, has also been challenged in the courts of USA, Australia and Sweden. Further the holding of the court in Esso Australia Ltd. v. The Honourable Sidney James Plowman gives due importance to the public interest principle, which is equally important.

THE PUBLIC INTEREST EXCEPTION: A CONFLICT OF PRINCIPLES

The ‘Public Interest Exception’, while giving preference to greater public good, refuses to recognize ‘the cloak of confidentiality.’ This principle contemplates a duty of disclosure upon the company in instances where public money is involved. This exception was coined by Justice Mason in the Australian case of Esso Australia Ltd. v. The Honourable Sidney JamesPlowman, wherein the court held that if the public has a legitimate interest in the content of the arbitral proceedings, then it can be a strong exception to the confidentiality obligations in the arbitration agreement.[20]

Thus, confidentiality and public interest exceptions are contradictory to each other and give rise to a conflict of principles.[21] Arbitration, in general, has to be confidential as is evident from the intent of the arbitration agreement and also from the historical development of arbitration. However, there comes a need for disclosure when the state or the public, in general, have an interest in the arbitration. Hence, we see different approaches of courts and contradictory treaties and conventions while dealing with confidentiality.

SAVING THE TRADE SECRETS: A FACT CHECK

Enforcing confidentiality even in cases not involving public interest is really difficult. This is mainly due to the small world of international arbitration, which never escapes the glaring scrutiny of the media and general public. Hence, enforcing confidentiality in ICA at times becomes highly impractical. Further, when it comes to maintaining the confidentiality of documents presented before the tribunal there is an inconsistency in case laws.  The contradiction of Ali Shipping[22]and Hassaneh Insurance[23]with Esso Australia, makes it highly difficult to ensure the confidentiality of such documents.

Protecting trade secrets is the basic intent and motive of the parties while entering into a confidentiality clause. With their being no concrete laws that protect the trade secrets, parties resort to patent and copyright laws. Article 39 of the TRIPS entails that members shall protect data that has commercial value because it is secret.

The World Intellectual Property Organization Arbitration Rules (hereinafter WIPO rules) carry the protection of ‘trade secrets’ much further. Article 52 of the WIPO rules defines confidential information as any information commercial significance not accessible to the public. WIPO rules ensure the protection of confidential information to the core existence of arbitration (Art. 73), disclosures made during the arbitration (Art. 74) and also to the reward (Art. 75).

CONCLUSION

Confidentiality of arbitration proceedings remains a contentious subject. Some jurisdictions acknowledge an implied confidentiality obligation while at the same time others do not even validate a pre-existing confidentiality agreement between the parties. Hence, we find divergent legal approaches of various legal systems regarding this subject. Both schools of thought discussed above have somewhat taken a narrow short-sighted approach and have in factrefrained from addressing the elephant in the room.

Various countries and arbitration institutions should come up with comprehensive guidelines that acknowledge the crucial role played by the confidentiality in arbitration, so as to ensure the   enforcement of confidentiality obligations, at least, in cases involving such pre-existing commitment. The new guidelines must also address the practical limitations to confidentiality obligations discussed above. The rules of TRIPS and WIPO should be adhered to while coming up with such guidelines. While Section 42A of our act acknowledges confidentiality, a complete ban is certainly not the need of the hour. The public interest exception is equally important and should be acknowledged. Hence, we propose that the law pertaining to confidentiality should be codified and have an universal application. In furtherance of the same we envision the aforesaid new guidelines which entail that confidentiality clauses should be judiciously implemented by the courts. Hence confidentiality, would not be an absolute right of the parties and if the facts and circumstances of the case demand the scope of confidentiality be narrowed, public interest exception can be invoked. Likewise, if by referring to the surrounding circumstances it seems like confidentiality clause has to be invoked (protecting trade secrets for instance) then the same needs to be complied with. Until then confidentiality remains a vital unsettled issue in the arbitration world. Hence we need to bridge gap between confidential obligation and public interest exception.


*Pratyush Nigam and Aditya Kishore are students at The National University of Juridical Sciences, Kolkata, India. The authors would like to thank Mr. Ishan Khare for his valuable insights and inputs.

[1] Michael Fesler, The Extent of Confidentiality in International Commercial Arbitration, Arbitration 2012, 78(1), 48-58.

[2] Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 27 (3rd ed.,1999).

[3] Gary B. Born, Confidentiality in International Arbitration 2787 (2nd ed., 2014).

[4] Urban Box Office Network, Inc. v. Interface Managers, L.P., 01 Civ. 8854 (LTS) (THK) (S.D.N.Y. Jul. 26, 2006).

[5] supra Note 2. ¶ 2.165 – 2.169.

[6] Hassneh Insurance Co of Israel v. Stuart J Mew, [1993] 2 Lloyd’s Rep 243.

[7] Supra Note 3.

[8] Andrew Tweeddale, Confidentiality in Arbitration and the Public Interest Exception, Arbitration International, Volume 21, Issue 1, 1 March 2005, Pages 59–70.

[9] Id.

[10] Id. 63.

[11] Nigel Blackaby Et Al, REDFERN ANDHUNTER ON INTERNATIONAL ARBITRATION – STUDENT VERSION, ¶ 3.07. (6th ed., 2015).

[12] Sulamérica Cia Nacional de Seguros S.A. v. EnesaEngenharia S.A., [2012] EWCA Civ 638.

[13] Blackaby, supra note 11, ¶ 3.43.

[14] Id., ¶ 3.37.

[15] Id., ¶ 3.39.

[16] Id.

[17] Hassneh Insurance Co of Israel v. Stuart J Mew, [1993] 2 Lloyd’s Rep 243.

[18] Ali Shipping Corporation v. Shipyard Trogir [1998] 1 Lloyd’s Rep 643.

[19] Aita v. Oggah, Judgment of 18 February 1986, 1986 Revue de L’arbitrage 583.

[20] Commonwealth of Australia v Cockatoo Dockyard Pty Ltd [1995]  36 NSWLR 662.

[21] Andrew Tweeddale, Confidentiality in Arbitration and the Public Interest Exception, Arbitration International, Volume 21, Issue 1, 1 March 2005, Pages 59–70.

[22] Ali Shipping Corporation v. Shipyard Trogir [1998] 1 Lloyd’s Rep 643.

[23] Hassneh Insurance Co of Israel v. Stuart J Mew, [1993] 2 Lloyd’s Rep 243.12] Sulamérica Cia Nacional de Seguros S.A. v. EnesaEngenharia S.A., [2012] EWCA Civ 638.


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