The In-House Lawyer

Florian Haugeneder discusses the complex issue of protecting confidential information during an international commercial arbitration process and considers the agreements that practitioners may want to consider to avoid unnecessary disclosures

Parties often expect international commercial arbitration to be confidential by nature¹. However, the courts of important arbitration venues have rejected the inherent confidentiality of arbitration². Some, but not all of the institutional arbitration rules contain confidentiality obligations for the parties³. 


The ongoing debate about the ‘implied’ confidentiality of international arbitration sometimes obscures the fact that, from the perspective of the users of international arbitration, the issue of confidentiality is broader and more complex than a simple ‘all or nothing’ question⁴. Contrary to widespread perception, the parties to an arbitration agreement are not necessarily acting on the ‘safe side’ if they opt for the broadest possible confidentiality provisions⁵. There are strong reasons for adopting a confidentiality regime that is adapted to the real needs of the parties. This contribution outlines some of the critical areas of which practitioners should be aware when they seek to protect confidentiality in the arbitral process. 


At the outset, it is useful to distinguish confidentiality from privacy. Privacy describes the fact that, absent a contrary agreement of the parties, the arbitral procedure is not open to the public⁶. Non-parties may therefore not attend hearings and there are no public records of the procedure. In contrast, the obligation of confidentiality requires the parties not to disclose information about, or information obtained within the arbitral process to third parties⁷. It is widely recognised that the arbitral process is private unless the parties agree to the contrary, and most arbitration laws and arbitration rules explicitly provide for privacy⁸. 


Protection of ‘inherently’ confidential information


Inherently confidential information requires protection independent of any arbitration proceedings⁹. Typical examples of such confidential information are protected trade secrets, know-how or other proprietory information, but also agreements to keep a contractual relationship or aspects of a contractual relationship secret¹⁰. The fact that arbitration proceedings have been initiated is not in itself the origin of the confidentiality obligation: a party who is not authorised to disclose confidential information to the public before the initiation of arbitral proceedings may, of course, not do so after the start of the proceedings either. 


It is therefore important in such a situation that the confidentiality of information is protected by a broad confidentiality agreement, in which arbitration is only one situation that needs to be covered. In addressing specifically arbitration proceedings, the situations to be addressed include: document production¹¹, access of third parties, such as witnesses and experts to confidential information, the possibility of redactions, separate confidentiality agreements by witnesses and experts, effective sanctions in case of breaches of confidentiality and destruction obligations after the end of the arbitration. In my experience, in situations with a pre-existing confidentiality obligation, it is often not overly difficult to agree during an ongoing arbitral proceeding on a reasonable framework for protecting confidential information¹². 


Even without a specific provision in the agreed arbitration rules or in a confidentiality agreement, most modern arbitration laws contain a broad provision on the arbitral tribunal’s procedural discretion, empowering it to adopt a procedure that reasonably protects confidential information¹³. 


A different aspect is the protection of proprietory information from the opposing party¹⁴. For instance, a party wishing to prove a patent infringement will likely need to disclose proprietory information about the content of the patent in order to discharge its burden of proof. Even if there is an effective protection in place against disclosure to third parties, such information may still be misused by the opponent. 


In many instances, sufficient protection may be provided by pragmatic arrangements, such as by restricting the access to the documents to a limited number of persons and destruction obligations at the end of the arbitration, or by redacting documents so that immaterial, but sensitive information is excluded from the production¹⁵. If an arbitral tribunal is nevertheless required to rule on an objection to a document production request on the basis of alleged confidentiality, the tribunal will have to inspect a document upon an ex parte application. The party who is denied access to the document may view this as a restriction of its right to be heard. To prevent such a situation, Article 3.8 of the International Bar Association Rules on the Taking of Evidence provides for the possibility that the arbitral tribunal appoints an independent expert who inspects the document and reports to the tribunal on 
the confidential nature of the document. 


Protection of the confidentiality of the arbitral process


The protection of inherently confidential information in arbitration proceedings has to be distinguished from the confidentiality of the arbitral process. As such, the confidentiality of arbitration is usually referred to as the obligation of the parties not to disclose to third parties information concerning the arbitration. According to this concept, information is confidential because it relates to, or was disclosed in the arbitration¹⁶. It is not specifically necessary for a party to demonstrate that the information is actually sensitive in order for it to be covered by the confidentiality obligation. Unless the applicable law provides for the confidentiality of the arbitral process, or recognises an implied obligation of confidentiality, an arbitral tribunal cannot ‘impose’ a confidentiality obligation solely in the exercise of its procedural discretion¹⁷. Hence the need for the parties to provide for the confidentiality of the arbitral process in an agreement if they wish to have appropriate safeguards for the confidentiality of the proceedings. 


The major advantage cited in favour of the confidentiality of the arbitral process is that the privacy of arbitration encourages the dispassionate resolution of disputes and avoids ‘trial by press release’¹⁸. If, as one commentator has said, the parties were ‘required to arbitrate by day while being free to pontificate publicly by night’, the concept of privacy would have no meaning¹⁹. This is a compelling reason for preventing the publication of transcripts and similar procedural documents, but does not provide sufficient guidance to define reasonable limits to the scope of confidentiality. 


It is generally recognised that an absolute obligation to refrain from disclosing information about the arbitration to third parties is neither possible nor economically desirable. A party may be under legal obligations to disclose information concerning the arbitration to insurers, auditors or regulatory bodies²⁰. But apart from legal obligations, a party may simply have a legitimate economic interest to make disclosures to investors, actual or potential business partners or, in certain circumstances, to the general public²¹. In some cases, a broad confidentiality obligation may, therefore, have surprising results for the parties. For instance, many companies keep their larger shareholders informed in detail about the arbitral process. Many of the standard confidentiality provisions arguably do not, however, authorise the unrestricted access of third parties to information about the arbitral process, even if they are major shareholders. 


Examples from cases decided by the English courts, such as Ali Shipping Corporation v Shipyard Trogir [1997], Aegis v European Re [2003] and Hassneh Insurance Co of Israel v Stuart J Mew [1993] show that confidentiality provisions may, if they are not properly crafted, be abused for oppressive litigation tactics. In fact, the majority of the published cases on confidentiality in arbitration do not fall into the category of ‘trial by press release’. While it is generally recognised that confidentiality cannot be absolute, the problem with very generally phrased exceptions to the principle of confidentiality is that their application depends on personal judgment and therefore carries the potential for dispute²². For instance, whether the disclosure of a document is ‘reasonably necessary’ or simply ‘convenient’ to establish a right often cannot be decided with any degree of certainty before its actual disclosure. 


It is therefore advisable for parties that wish to regulate the confidentiality of arbitration to have a clear picture of what exactly they want to achieve with a confidentiality provision, and to anticipate, to the extent possible, the potential for abuse. 


Limitations of the protection of confidentiality


The scope of confidentiality is generally subject to party autonomy. However, there are limitations to any confidentiality obligation in arbitration that cannot, or 
only to a limited extent, be controlled by 
the parties. 


An arbitral award may be subject to enforcement or setting aside proceedings. The applicable procedural law of the forum may, but need not, provide for measures to protect the confidentiality of the arbitration. If complete confidentiality of the arbitral process is desired, the choice of a forum that allows the exclusion of the public from such proceedings will be useful. For instance, pursuant to s616(2) of the Austrian Civil Procedure Code, the court may, at the request of a party, exclude the public in setting aside proceedings²³. 


Any confidentiality agreement is only effective inter partes and does not, for instance, bind witnesses and party-appointed experts²⁴. This may partly be overcome by an obligation for the parties to conclude separate confidentiality agreements with witnesses before disclosing confidential information to them. However, the weight given to a confidentiality agreement between party A and B in a dispute between party B and C is generally not absolute²⁵. 


States are at liberty to provide for exceptions to confidentiality obligations in their laws. These exceptions may be contained in securities regulations, accounting regulations, regulations containing the powers of the law enforcement authorities etc. For instance, in Esso Australia Resources Ltd v Plowman [1995]²⁶, the Australian High Court found that a statutory information right overruled any confidentiality obligations in arbitration proceedings. The English courts also recognise that ‘public policy’ and the ‘interests of justice’ justify an exception 
of confidentiality²⁷. 


The available remedies to enforce a confidentiality obligation are not always effective²⁸. Interim measures obtained from an arbitral tribunal or a state court may only prevent future violations, but provide no useful remedy for violations that have already occurred. It will often be difficult to establish damages that were caused by the violation of confidentiality. An arbitral tribunal does not have the power to order ‘punitive’ sanctions in case a confidentiality order is breached. It is therefore advisable to include a provision on liquidated damages in a confidentiality agreement in order to create an efficient deterrent against violations. 


Practical Aspects


It is neither possible nor useful to recommend generic formulas regarding the protection of confidentiality in the arbitral process. Parties should be aware that the effective protection of their interests and expectations depends on the adaptation of confidentiality provisions to the individual circumstances. Broad, general language will not always provide efficient protection. The following observations may help to avoid negative surprises: 


• The exchange of sensitive information usually does not start at the beginning of an arbitration. An efficient protection of business secrets covers the entire contractual relationship, of which an arbitration is only one, hopefully never materialising, eventuality. If sensitive information is to be exchanged in 
pre-contractual contacts, they should be protected by a separate confidentiality agreement. 

• The definition of the scoperatione personae of a confidentiality regime should take account of the reality 
of the business relationship. For example, if the relationship involves several entities of which only one is a party to the arbitration agreement (eg several companies in a group of companies), it is useful to reflect 
this in the confidentiality provisions. 
In a multi-party, multi-contract 
situation (eg in a construction project), there may be a need to exchange information among the concerned companies. The confidentiality provision should not be a bar to the continuation of the working relationship. 

• It may sometimes be necessary or useful to allow the disclosure of information obtained in an arbitration to certain third parties. Cases involving insurers and reinsurers are examples of this practical need. In order to prevent leaks in the chain of disclosures, the confidentiality provision should define the third party in question, the type of information and the purpose of the disclosure. In addition, the disclosure should be made conditional upon a confidentiality undertaking by the third party.

• Not every piece of information disclosed in an arbitration is equally sensitive. In order to effectively enforce confidentiality obligations, it is often useful to restrict the access to designated, highly confidential information to a limited number of persons from the opponent, who in turn are asked to make confidentiality undertakings. As such a regime may require significant administrative efforts, it is advisable to extend it only to truly confidential information.

• It may be advisable to provide for effective sanctions in case of violations of confidentiality, such as liquidated damages. 

• Generally, the confidentiality regime after the start of an arbitration should be in line with the parties’ contractual practice before its initiation. If the parties were at liberty to disclose the existence of their contractual relationship and have made press releases in this respect, an absolute prohibition to disclose information about the arbitral proceedings may be perceived as inconsistent and counterproductive in terms of public relations. In such a situation, it is usually not harmful if the parties are allowed to continue to publish general, objectively verifiable information about the dispute. 


By Florian Haugeneder, partner, Wolf Theiss. 
E-mail: florian.haugeneder@
wolftheiss.com.

Aegis v European Re [2003] UKPC 11


Ali Shipping Corporation v Shipyard Trogir [1997] EWCA Civ 3054


Bulgarian Foreign Trade Bank Ltd v AI Trade Finance Inc [1999] Case No T1881-99 (Swedish Supreme Court)


Emmott v Michael Wilson & Partners [2008] EWCA Civ 184


Esso Australia Resources Ltd v Plowman [1995] HCA 19


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

1. See, eg, A Jolles and M Canals de Cediel, Chapter 6, ‘Confidentiality’, in International Arbitration in Switzerland (G Kaufmann-Kohler and 
B Stucki, eds, 2004), p89.

2. See, eg, Esso Australia Resources Ltd v Plowman, Arbitration International (1995), Vol 11, No 3, p235; Bulgarian Foreign Trade Bank Ltd v AI Trade Finance Inc, Yearbook of Commercial Arbitration, XXVI (2001), 291 and the discussion in J Paulsson and N Rawding, ‘The Trouble with Confidentiality’, Arbitration International, Vol 11, No 3 (1995), p303.

3. Containing confidentiality obligations for the parties: Article 30 LCIA Rules, Article 43 Swiss rules, Article 43 DIS Rules; in contrast, the UNCITRAL and Vienna Rules contain no general confidentiality obligations for the parties. Article 22 (3) of the 2012 ICC Rules of Arbitration empowers the arbitral tribunal to ‘make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration’. 

4. In favour of an implied confidentiality obligation: see, eg, Fouchard Gaillard Goldman on International Arbitration (E Gaillard and J Savage, eds, 1999), p612; for the contrary view, see, eg ‘Expert Report of DM Lew J (in Esso v Plowman)’, Arbitration International, Vol 11, No 3 (1995), p283; M Young and S Chapman, ‘Confidentiality in International Arbitration: Does the Exception Prove the Rule? Where Now for the Implied Duty of Confidentiality under English Law?’, ASA Bulletin, Vol 27, No 1, p26; P Oberhammer, ‘Zur Vertraulichkeit von Schiedsverfahren’, in Festschrift Beys (H Nakamura, H Fasching et al eds, 2003); F Schwarz and C Konrad, The Vienna Rules A Commentary on International Arbitration in Austria (2009), p479.

5. R Oldenstam and J von Pachelbel, ‘Confidentiality and Arbitration – A Few Reflections and Practical Notes’, SchiedsVZ 2006, No 1, p31. 

6. G Born, International Commercial Arbitration (2009), 2251. 

7. Ibid.

8. Note, however, the exceptions to privacy provided in Rule 32 of the ICISD Rules of Procedure for Arbitration Proceedings, allowing, if no party objects, other persons to attend the hearings. See generally the discussion about transparency in investor-state arbitration in the UNCITRAL working group on arbitration and conciliation (www.uncitral.org/uncitral/en/commission/working_groups/2Arbitration.html). 

9. See, eg, FT Schwarz and O Braeuer, ‘Geheimnisschutz im Internationalen Schiedsverfahren’, ecolex 2011, 99; Y Derains, ‘Evidence and Confidentiality’, in ICC ICArb Bull, Special Supplement 2009, 57 et seq. 

10. On the protection of the confidentiality of intellectual property, see T Cook and A Garcia, International Intellectual Property Arbitration (2010), p229. 

11. The IBA Rules on the Taking of Evidence in International Arbitration 2010 (available on http://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx#takingevidence) govern the document production procedure only if they are agreed between the parties. However, they give a good overview of the practice in international arbitration and they are frequently used by arbitral tribunals as guidelines. 

12. M Hwang and K Chung, ‘Defining the Indefinable: Practical Problems of Confidentiality in Arbitration’, Journal of International Arbitration, Vol 26, No 5, 609, at 645, recommend an ‘ad hoc’ solution at an early directions meeting. 

13. See, eg, s599(1) of the Austrian Civil Procedure Code; Schwarz and Braeuer, supra note 9. 

14. See, in particular, T Cook and A Garcia, supra note 10, 259 et seq. 

15. Schwarz and Braeuer, supra note 9. 

16. See the clear distinction in Emmott v Michael Wilson & Partners [2008], per LJ Collins at para 81. 

17. Oberhammer, supra note 4, p1163. 

18. Born, supra note 6, p2250. 

19. LY Fortier, ‘The Occasionally Unwarranted Assumption of Confidentiality’, Arbitration International, Vol 15, No 2, 131, at p132. 

20. Oldenstam and von Pachelbel, supra note 6 at p34. 

21. Ibid. 

22. M Young and S Chapman, supra note 4 at p38. 

23. On the scope of this provision, see V Öhlberger, ‘How Confidential Is Arbitration in Austria? A Comparative Analysis’, in Austrian Yearbook on International Arbitration 2011, 65. 

24. Born, supra note 6, p2286. 

25. Ibid. 

26. Arbitration International (1995), Vol 11, No 3, p235. 

27. see, eg, Emmott v Michael Wilson & Partners, supra note 16.

28. Oberhammer, supra note 4, 1160.