Article by Yuliya S Chernykh and Andrey Y Astapov
Originally Published by International Law Office, 4th June 2009.
Confidentiality is considered one of the main advantages of international commercial arbitration. However, what does the term 'confidentiality' mean in practice? The answer is sometimes unclear, even to accustomed international arbitration users.
In contrast to the principle of public access, which applies in Ukraine's commercial and civil courts, arbitral confidentiality provides for the specific protection of information revealed in proceedings. This approach is rooted in the private law basis of international arbitration.
Despite an apparent general acceptance of the confidentiality principle, parties to arbitration may have different opinions on the extent of the obligation it imposes and the persons bound by it, mainly because there is a shortage of legislation and arbitral or judicial precedent on the matter.
The Law on International Commercial Arbitration (4002-XII/1994), which is largely inspired by the United Nations Commission on International Trade Law (UNCITRAL) Model Law 1985, contains no guidance or instructions concerning the confidentiality of arbitral proceedings, leaving the issue to be resolved by the rules of the relevant Ukrainian arbitral institution at the Ukrainian Chamber of Commerce and Industry - the International Commercial Arbitration Court or the International Maritime Commission - or by agreement between the parties.
The rules of the Ukrainian arbitral institutions contain a separate rule on confidentiality, which limits the duty and does not include the parties in the list of persons bound by it. Article 12 of the International Commercial Arbitration Court Rules states that "the president and vice presidents..., arbitrators and the... secretariat shall refrain from disclosing information about disputes under consideration by the [court] of which they become aware".
The leading international institutions have adopted various approaches to the concept of confidentiality, opting for rules which:
- do not include specific confidentiality provisions (eg, the International Commercial Arbitration Court of the International Chamber of Commerce and the International Arbitration Centre of the Austrian Federal Economic Chamber);
- refer to certain persons to whom the duty of confidentiality applies (eg, the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation and the Arbitration Institute of the Stockholm Chamber of Commerce); or
- include a list of persons and define the scope of confidential information (eg, the London Court of International Arbitration).
The absence of an explicit rule on the confidentiality of arbitral proceedings or a mandatory requirement that all participants follow the principle may result in substantial damage to a party's lawful interests. In the context of the global economic downturn, the threshold for a damaging breach of confidentiality may be relatively low. For example, if a party to arbitration wilfully discloses information about pending international arbitration proceedings, including the subject matter and the amount claimed, to a bank or other financial institution which has dealings with the counterparty to the arbitration, this may adversely affect the counterparty's business reputation and could be a factor in the bank or institution revising the counterparty's credit rating or rejecting a request for a loan. Thus, a breach of confidentiality can undermine one of the fundamental advantages of international arbitration and negate the value of selecting this particular method of dispute resolution.
Due to the legislative ambiguity on this issue in Ukraine, the only way of minimizing such a risk is to include specific contractual provisions on the confidentiality of arbitration-related information. In this context, it is more important to reach agreement on keeping arbitration proceedings confidential than to ensure the non-disclosure of other contractual terms and conditions.1 Alternatively, if no specific confidentiality clause exists, the parties in dispute may agree to confidential terms when the decision to arbitrate is made, provided that their relationship allows them to reach consensus on this point.
The terms of a confidentiality agreement2 may specify:
- the information that must be treated as confidential (eg, written explanations by the parties, evidence, written and oral arguments, the existence of the arbitration proceedings, the identity of the arbitrators and the details of the award);
- the means by which confidentiality is guaranteed (eg, delivery of documents by courier mail, not email); and
- the circumstances in which full or partial disclosure may reasonably be required (eg, if a party is ordered to divulge information by the public authorities or in the event of a party's failure to comply in good faith with the arbitral award).
However, such agreements would be unnecessary if Ukraine's arbitral institutions revised their rules to include parties to arbitration proceedings in the list of persons bound by the duty of confidentiality.
1 The concept of the autonomy of an arbitration clause applies only where the recognition of a primary contract as invalid does not imply the invalidity of the arbitration clause. However, some professionals apply this absolute autonomy more generally and argue that such a clause cannot be interpreted or applied on the basis of other terms and conditions in the contract.
2 See the UNCITRAL Notes on Organizing Arbitral Proceedings 1996.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.