Ethical Rules for International Arbitrators - 8
Ramon Mullerat OBE
V. Confidentiality
1. Importance of confidentiality
One of the reasons why parties decide to resort to arbitration is that their case will remain private far away from the eyes of the press and their competitors, clients and suppliers. Litigation in national courts is generally open to the public and to the media. By contrast, arbitral proceedings are conducted in private, so that the identities of the parties and of the tribunal, and the nature of the dispute, should remain confidential. This may assist to preserve trade secrets and, in some eases, even to the rebuilding commercial relations. It will also provide an environment thai may be more conducive to reaching a settlement. It is also part of the private and confidential nature of arbitration that proceedings are conducted in a less formal atmosphere than is generally the case in the courts (LC1A, Introductory Brochure).
Confidentiality encourages candor, a full exploration of the issues and an arbitrator's acceptability. Also, confidentiality allows the parties to reach agreements during the arbitralional proceedings and also the possibility of continuing commercial relations between them.
In principle, unless otherwise agreed by the parties or required by applicable rules or law, an arbitrator should keep confidential all matters relating to the arbitration proceedings and decisions (Canon Four, National Arbitration Forum Code). An arbitrator should not discuss a case with persons not in the arbitration unless the identity of the parties and details of the case are sufficiently obscured to eliminate any realistic probability of identification.
The English courts 21 have held that an implied term as to the confidentiality of the proceeding is an essential corollary of the privacy of arbitration proceedings and a term which the nature of the contract itself implicitly requires.
Confidentiality covers all documents, materials and awards in arbitration. Likewise, the deliberations of the arbitration tribunal are confidential.
Confidentiality is permanent and, therefore, an arbitrator should not participate in, or give any information for the purpose of giving assistance in any proceeding to consider the award (art. 9 Milan Code of Ethics; art. 7 of CLARB Guidelines of Good Practice, art. 5.5 of Vienna Rules; 20 ICC; 35 AAA; 25 Uncitral; 17 CPR and 9 IBA).
Confidentiality is excluded when the parties reach a mutual agreement to make public the facts or when they are legally obliged to do so (art 30 LC1A Rules; art. 35 ABA International Arbitration Rules, etc).
3. Persons obliged by confidentiality
It is important to decide whether both arbitrators and parties are bound by a principle providing for absolute confidentiality in respect of the arbitration proceedings. The Swedish Supreme Court addressed the issue in a judgement given on 27 October 2000, and concluded that this principle of law does not exist. At present, the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce provide that both the SCC Institute and the arbitration panel should maintain the confidentiality of the arbitration, but there is no express obligation on the parties to do so 22 23.
The LCIA European Council Symposium on 14 November considered the decision of the Swedish Court to render an (interim) award void on the grounds that a breach of confidentiality constituted a violation of an essential element of the agreement to arbitrate in and therefore rendered the agreement to arbitrate null and void, was in error. Confidentiality is an element of arbitration agreements but unless it can be shown that the parties agreed to elevate confidentiality to an essential element of the agreement to arbitrate a violation should not result in avoidance of the arbitration agreement.
A debated question concerning confidentiality is the relationship between an"arbitrating party and its holding or associated companies. In what circumstances, for example, can an arbitrating company communicate to its holding company what is happening to the arbitration without breaching confidentiality?
These are some arguments in favour that there should be no breach of confidentiality when parties to whom disclosure is contemplated are in the same beneficial ownerships and managements as the party in arbitration, as the need to qualify accounts in consequence of advice given in relation to the arbitration. The past advantage of confidentiality does not therefore come without some drawbacks that must be considered. In considering these issues, careful consideration must be given to the specifics before a strategy for addressing them can be determined, for example, who are the parties to the communications? What is their relationship? What are their mutual or divergent interests? What will the communication be? 24
21Ali Shipping Corp. v Shipyard Tragir [1999] 1 WLR 314. back
22 A Bulgarian bank (Bulgarian Foreign Trade Bank Ltd) had a line ofcredit with an Austrian hank to facilitate financing of various contracts between Austrian export companies and Bulgarian import companies. After a few years the Austrian bank transferred its right to payment under some of the loans to a finance company, A,I. Trade Finance Inc. The Bulgarian bank was notified of the transfer. The Bulgarian bank did not pay the finance company which therefore initiated arbitration proceedings against the Bulgarian bank. The arbitration proceedings took place in Stockholm according to the arbitration clause in the agreement between the Bulgarian bank and the Austrian bank. The Bulgarian bank alleged that it was not bound by the arbitration clause because there was not a valid contract of arbitration between the parties to the proceedings, i.e. the loan agreement with the arbitration clause had originally been executed between the Bulgarian bank and the Austrian bank. The arbitrators made a ruling on this issue and found that the Bulgarian bank was bound by the arbitration clause. The ruling was reported in Mealey's International Arbitration Report (apparently the US counsel of the finance company had distributed the ruling to Mealey's). Furthermore the finance company's Swedish counsel gave the article to the chairman of the arbitration panel, Mr. Lars Welamson, a former Judge in the Swedish Supreme Court. Mr. Welamson distributed the article to a judge in the Swedish Supreme Court who quoted the article in a judgement regarding a similar case. When it found out what had happened, the Bulgarian bank purported to rescind the arbitration contract on the grounds of breach of a duty of confidentiality. Furthermore it challenged the award and alleged that the UN ECE arbitration rules, which were the applicable procedural rules according to the arbitration clause, provide for a contractual obligation of secrecy between the parties themselves and between the parties and the arbitrators. Furthermore the Bulgarian bank alleged that it was a fundamental principle of Swedish law that arbitration proceedings arc absolutely secret. The Bulgarian bank was successful in challenging the award in the District Court but lost in the Court of Appeal. The Supreme Court agreed with the Court of Appeal and made the following remarks. The ECE arbitration rules do not contain an obligation of secrecy which makes it a breach of the arbitration clause to reveal the outcome of the proceedings. back
23 Jonas Bcnedictsson and Anders Isgren, Confidentiality in Arbitration in Sweden. back
24 Nicholas Baratz, "Some issues concerning confidentiality of arbitrators in English Law", ICC United Kingdom, members handbook, vol VI, p. 45 and the English court decisions he cites: Ali Shipping Corp. v. Shipyard Trogir [1999] 1 WLR 314, Associated Electrical and Gas v. European Reassurance, City of Gotha v Sothebys [1998] 1 WLR 114. back