13 Oct 2011

How confidential will your international arbitration really be?

by Robert Cutler, Timothy Webb, Ana Totoeva

If you want to ensure the confidentiality of an arbitration, thought should be given to this when drafting the arbitration clause or agreement.

It is a general principle of Australian judicial proceedings that legal proceedings take place in open court. The resulting publicity may not be desirable for disputing parties and hence the privacy offered by arbitration may present an attractive option as opposed to litigation. However, parties to international commercial arbitration may be surprised to learn that confidentiality in arbitration cannot be assumed. Despite arbitration being essentially a private process, this does not necessarily mean that it will be confidential.

If you want to ensure the confidentiality of an arbitration, thought should be given to this when drafting the arbitration clause or agreement.

Privacy and confidentiality

It is important to distinguish between privacy and confidentiality in arbitrations. The concept of privacy in this context usually applies to events (such as preliminary conferences or hearings) and means third parties are unable to attend. However, the fact that a hearing is private does not mean that it, or the arbitration more broadly, is confidential and thereby obligations of confidence attach to the participants. Indeed, confidentiality – that is whether particular information can be publicly disclosed – is a separate concept that needs to be considered.

Confidentiality in international arbitration

There is no generally accepted approach to confidentiality in international arbitrations. Common and civil law jurisdictions have produced conflicting results on a number of key confidentiality issues, such as:

  • whether there is a general implied duty of confidentiality in arbitral proceedings – for example, in Australia and the United States courts have declined to recognise any such implied duty whereas in England and France they have;
  • what information should be kept confidential – witness statements, commercially sensitive information, submissions, the award, or all information related to the arbitration?;
  • who is bound by any such duty – does it cover only the parties and arbitrators, or also their representatives and employees as well as lay and expert witnesses?;
  • whether confidentiality applies during court proceedings that are related to the arbitration – such as enforcement proceedings or proceedings challenging the arbitral award; and
  • whether confidentiality extends to the fact that the arbitration is taking place – or does it cover only information produced or disclosed within the arbitral proceedings?

Similarly, there is a great deal of disparity in how institutional arbitration rules treat confidentiality. Most institutional rules are geared towards the protection of privacy and confidentiality in arbitral proceedings. However, not all arbitration rules state that the arbitral proceedings will be confidential. Indeed, the Rules of Arbitration of the International Chamber of Commerce (ICC), the largest international arbitration institution, do not establish confidentiality as the default position, although they allow the arbitral tribunal to "take measures" for the protection of confidential information.

This absence of uniformity has led some to argue that "with respect to confidentiality in international commercial arbitrations, nothing should be taken for granted".[1] It is therefore critical that parties turn their minds to this in their arbitration agreement.

Parties should consider confidentiality at the time of entering into an arbitration agreement and whether it should apply either by express provision in that document or, alternatively, by adopting institutional rules that provide for that duty. Even where the law of the seat or the arbitration rules provide for confidentiality, the parties may wish to supplement or vary the scope of this duty by their agreement.

Points to note

Key matters to consider are:

  • Be aware of whether the law of the chosen seat of arbitration establishes confidentiality, either by legislative imposition or by recognising an implied duty of confidentiality.
  • For an international commercial arbitration whose seat is in Australia, the International Arbitration Act 1974 (Cth) includes detailed provisions regarding the disclosure of confidential information, but they only apply if the parties to the arbitration agreement agree (whether in that agreement or otherwise in writing) that they will apply.
  • For domestic arbitration in Australia, the converse will be the case once reform of domestic arbitration is implemented by each State and Territory.[2] Confidentiality provisions will apply, unless otherwise agreed by the parties.
  • If the chosen seat of arbitration does not establish confidentiality, the parties' agreement - whether in the arbitration agreement or rules of arbitration adopted by the parties - may be necessary for a duty of confidentiality to exist.
  • When considering which institutional rules to adopt, consider how confidentiality is treated and its importance in the context of other priorities.
  • If the rules adopted do not provide the degree of protection sought, supplement the rules by express terms regarding confidentiality in the arbitration agreement.
  • Take care in drafting the confidentiality clause. Consider what precisely is intended to be confidential.
  • If the rules adopted do not bind witnesses in the arbitral proceedings, consider obtaining confidentiality agreements from the witnesses.
  • Be aware that complete confidentiality cannot be achieved. Disclosure may be necessary by a public company to comply with its obligations of financial reporting, to comply with other statutory or stock exchange requirements, for the purposes of a claim under a policy of insurance, for auditing purposes and for other valid reasons.
  • It is always preferable to negotiate a written arbitration agreement before a dispute arises, as it may be difficult to reach agreement once a dispute occurs.

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[1] LY Fortier, 'The Occasionally Unwarranted Assumption of Confidentiality" (1999) 15(2) Arbitration International 131.

[2] As a result of major national reform in the area of domestic arbitration, it is envisaged that each State and Territory will have "Uniform Acts" which implement the provisions of the Commercial Arbitration Bill 2010 (Cth). The Commercial Arbitration Act 2010 has commenced in New South Wales. Comparable legislation has been passed in Tasmania, Northern Territory and South Australia, but is yet to commence. Western Australia and Victoria have introduced Bills into Parliament. Queensland and the ACT are yet to introduce respective Bills to implement the proposed reform.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.