ARTICLE
October 10, 2013

CONFIDENTIALITY IN ARBITRATION: Fundamental Virtue or Mere Illusion?

Confidentiality and privacy are often touted as major benefits of arbitration in resolving disputes compared to litigation, which is neither private nor confidential. In civil courts, proceedings and documents are generally open to the public and this would be unappealing to parties who desire to keep certain information away from public scrutiny, be they allegations arising from disputes or commercially sensitive information.

Privacy in arbitration means that third parties and strangers will be excluded and have no access to the arbitration proceedings without the consent of parties. confidentially in arbitration refers to the fact that the proceedings, materials disclosed or created during proceedings and the arbitral award cannot be disclosed by the tribunal, parties, their representatives, witnesses or any other individuals attending without the consent of the parties.

Privacy and confidentiality are interrelated concepts. If an arbitration hearing is open to strangers then it would be quite impossible to maintain its confidentiality. If it is conducted in private but attendees are free to disclose what transpired to others, then the privacy of the proceedings would be pointless.

While many may assume and believe that confidentiality applies to arbitration, there are exceptions to the general rule.

Confidentiality and privacy are often touted as major benefits of arbitration in resolving disputes compared to litigation, which is neither private nor confidential. In civil courts, proceedings and documents are generally open to the public and this would be unappealing to parties who desire to keep certain information away from public scrutiny, be they allegations arising from disputes or commercially sensitive information.

Privacy in arbitration means that third parties and strangers will be excluded and have no access to the arbitration proceedings without the consent of parties. Confidentially in arbitration refers to the fact that the proceedings, materials disclosed or created during proceedings and the arbitral award cannot be disclosed by the tribunal, parties, their representatives, witnesses or any other individuals attending without the consent of the parties.

Privacy and confidentiality are interrelated concepts. If an arbitration hearing were open to strangers then it would be quite impossible to maintain its confidentiality. If it is conducted in private but attendees are free to disclose what transpired to others, then the privacy of the proceedings would be pointless.

While many may assume and believe that confidentiality applies to arbitration, there are exceptions to the general rule.

Differing Positions

Australia, Sweden and the United States

The highest appellate court of Australia in Esso Australia Resources Ltd v The Honorable Sidney James Plowman (Minster of Energy and Minerals) & 2 Others (1995) 128 ALR 391 decided an appeal where a dispute had arisen when two public utility companies (the second and third respondents) refused to pay an increased price for gas supplied by Esso Australia (the appellant) under certain agreements which contained arbitration clauses. Esso Australia had refused to provide details of calculations of the price increases to the utility companies unless they entered into confidentiality agreements protecting the information.

Esso Australia had refused to provide details of calculations of the price increases to the utility companies unless they entered into confidentiality agreements protecting the information.

The minister sought a declaration that information disclosed to the utility companies (which is under his ministry’s purview) by Esso Australia would not be subject to the obligation of confidence, claiming that the utility companies are under a statutory duty to disclose the information. Esso Australia sought an opposite declaration that the information revealed in arbitration would remain confidential and would not be disclosed to third parties, claiming that the information, if made public, would be detrimental to Esso Australia’s commercial interests. There was an element of public interest in the case as the prices charged to the utility companies would affect the prices paid by members of the public.

The High Court of Australia decided (on a majority of four to one) that a general duty of confidentiality is not implied into an agreement to arbitrate.

Mason CJ considered that there were various instances in which an arbitration award or proceeding may be disclosed. This included various applications to court, judicial review and enforcement proceedings. Disclosure could also be necessary to comply with statutory, regulatory or insurance requirements.

His lordship considered that confidentiality was a by-product of privacy and not “an essential attribute of a 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”. Since confidentiality was not an essential attribute, “there can be no basis for implication [into the arbitration agreement] as a matter or necessity.” confidentiality could be agreed to expressly but could not be automatically implied.

This approach has also been adopted by the courts of Sweden (Trade Finance Incorporated v Bulgarian Foreign Trade Bank Ltd. ((1998) Stokholm city court, case No. T-111-98) and the United States (United States v Panhandle Eastern Corp. (1998) 118 F.R.D. 346 (D. Del)). In view of this, parties would be well advised to expressly incorporate an obligation of confidentiality in their arbitration agreements when they intend to arbitrate in any of these countries.

The United Kingdom, France and Malaysia

The Esso Australia case went against the grain of common law in the uK where the courts have generally implied a term of confidentiality into an arbitration agreement either as a matter of business efficacy (Insurance Co. v Lloyd’s Syndicate and Hassneh Insurance Co v Mew [1993] 2 lloyd’s rep 243) or as a term arising out of the very nature of the arbitral process, the contract itself or as a matter of law (Liverpool City Council v Irwin [1976] all er 39; Dolling-Baker v Merret [1991] 2 All ER 136 and Ali Shipping Corp v Shipyard Trogir [1998] 2 All ER 136;). in France the courts recognised an unqualified duty of confidentiality (Aita v Ojjeh).

In Ali Shipping Corp’s case, the english court of appeal stated, “…so far as the juridical nature of that term is concerned, while I note that in Hassneh Insurance Co v Mew [1993]2 Llyod’s Rep 243 at 246, Coleman J remarked that the ‘implication of the term must be based on custom or business efficacy’ I consider that the implied term ought properly to be regarded as attaching as a matter of law. It seems to me that, in holding as a matter of principle that the obligation of confidentiality (whatever its precise limits) arises as an essential corollary of the privacy of arbitration proceedings, the court is propounding a term which arises ‘as the nature of the contract itself implicitly requires’”

There is yet to be any Malaysian jurisprudence where the limits of confidentiality in arbitration are tested as part of its subject matter. However, the High court made an obiter remark that “it is now accepted, by all and sundry, that arbitrations are private and confidential” quoting supporting English cases (Malaysian Newsprint Industries Sdn Bhd v Bechtel International, Inc [2008] 5 MLJ 254.). Short of any other judicial pronouncements, this suggests that Malaysian courts will follow the UK position.

The Limits of Confidentiality

Confidentiality is wide enough to cover the arbitration proceedings (including witness’ testimony), the arbitral award and its reasons as well as materials disclosed, discovered and created in the proceedings (including pleadings, reports, documents submitted, witness statements, transcripts, notes of evidence and written submissions). However, confidentiality is not absolute and is subject to various exceptions.

Under the UK position, Potter LJ in Ali Shipping Corp’s case listed the following exceptions where disclosure can be made:

1. Where the party who originally produced the material expressly or impliedly consents;
2. Disclosure pursuant to an order of the court or with leave of court;
3. Disclosure to the extent reasonably necessary for the protection of a party’s legitimate interests, in particular in establishing or defending a claim against or from a third party; and
4. Disclosure where the interests of justice requires it. His lordship differentiated this from “public interests” to avoid the suggestion that the exception extended to cases of public interest as in Esso Australia.

“Reasonable necessity” under exception (iii) was stated by potter LJ to decidedly reflect flexibility in the court’s approach. Rather than requiring a party seeking disclosure to prove necessity regardless of difficulty or expense, the court “should approach the matter in the round”, taking into account various factors such as the nature and purpose of the proceedings where the material is required, powers and procedures of the tribunal where the latter proceedings are conducted, issues the information sought were directed at and the practicality and expense of obtaining the information elsewhere.

In considering “the interests of justice” under exception (iv), Potter LJ approved the approach taken by Mance J in London and Leeds Estates Ltd (No 2) [1995] 1 EGLR 102 where it was held that a party to court proceedings was entitled to call for the proof of an expert witness in a previous arbitration where it appeared the expert had expressed views contrary to those he expressed in court. Potter LJ was of the opinion that the information affected the judicial decision being reached upon the basis of the truthful or accurate evidence of the witnesses concerned.

The concepts of “reasonable necessity” and “interests of justice” as exceptions have much potential of diluting the obligation of confidentiality as they leave the door open to judicial interpretation as seen above.

Our Arbitration Act 2005 itself provides for various provisions where arbitral proceedings or awards may be disclosed in court. These include:

1. Applications for interim measures under Section 11;
2. Challenges of an appointments of arbitrators under Section 15;
3. Applications to set aside under Section 37;
4. Section 38; and
5. References on questions of law under Section 42.

In instances where confidentiality in arbitration is unlawfully breached, actions based on either contract or the tort of breach of confidential information giving rise to injunctive relief to protect from potential or further breaches are available. Each of these remedies has its own respective requirements at law which must be met by claimants intending to enforce them.

Practical safeguards

As a practical matter, one can imagine many other situations where confidentiality in arbitrations can be compromised whether legitimately or otherwise. Some of the reasons would include: winning parties may be tempted to reveal proceedings or awards to non- parties and statutory bodies, a party may have to disclose to comply with legal regulations, police enquiries or insurance policies, expert witnesses may engage third party assistance in producing reports who would then know of the arbitration or parties may internally inform related or holding companies.

There are some measures which can be taken to protect confidentiality in arbitration. One suggestion would be to expressly incorporate a confidentiality clause in the arbitration agreement, stating the extent of confidentiality and remedies for breach. Contracts of engagement for transcribers and interpreters should similarly incorporate such obligations.

Another measure would be to consider how different governing rules of arbitration might affect confidentiality when deciding which rules to adopt. The UNCITRAL model law provides for the privacy of proceedings and the confidentiality of the award (articles 25.4 and 32.5) but does not cover confidentiality beyond the award itself. The ICC rules do not have any express provisions regarding confidentiality. In contrast, Rule 12 of KLRCA’s arbitration rules expressly provide that the tribunal, parties and KLRCA shall maintain confidentially relating to the arbitral proceedings and award. The WIPO rules have a whole chapter on confidentiality.

Another step to protect confidentiality would be to communicate the obligation, particularly to witnesses and permitted individuals who are not subject to any contractual obligation so as to expressly warn of a tortuous obligation not to disclose confidential information. Parties can also limit the copies of documents used in the arbitration proceedings to avoid unwanted disclosure.

Conclusion

There are so many exceptions to the general rule of confidentiality in arbitration that it is clear confidentiality is not absolute. Whilst the limits of confidentiality in arbitration have yet to be tested in Malaysian courts, parties to arbitrations would do well to take extra precautions in protecting confidentiality, especially if there is sensitivity involved with the arbitrations proceedings and materials arising therein.