Confidentiality in Arbitrations – No Unified Approach

By Stephen Llewellyn, Counsel and James Wagner, Associate at international law firm Faegre Baker Daniels LLP

It is often assumed that all aspects of arbitrations are covered by confidentiality as a matter of course for all the parties involved. Certainly, it is regarded as important: in a 2013 survey from Pricewaterhouse Coopers and Queen Mary University of London relating to international arbitration, confidentiality was cited by 21% of respondents as the second most important benefit of arbitration.

The situation is not as clear cut as it might seem, however: for one, there is a distinction between privacy and confidentiality. Privacy covers the fact that the public are not permitted to attend hearings of arbitral tribunals, and that there are no publicly available records of such hearings. Confidentiality refers to the duty to keep certain information or documents obtained as part of the arbitration process as confidential. It is this latter point which warrants examining because the approach, as between the different institutions and laws relating to arbitrations is far from unified.

Why is confidentiality important to banking/financial services disputes?

Traditionally, banking and financial services disputes were referred to litigation rather than arbitration. In the 2013 survey previously cited, 82% of respondents in the financial services sector ranked litigation as their most preferred dispute resolution mechanism. This was down to a perception that those disputes were better suited to being before the courts because banks and financial institutions looked to the courts to set precedents against defaulting parties.

Following the global credit crisis in 2008, however, the banking and financial services industry saw the advantage of keeping certain high-level disputes under wraps. With confidence in the industry at a low, it had no desire to risk generating any more bad press. As a result, referrals to arbitration began to increase given that it offered privacy and confidentiality that traditionally preferred litigation could not.

The arbitration clause

One of the key advantages of arbitration over litigation is the opportunity to design a bespoke dispute resolution clause at the outset. A well-drafted arbitration clause can provide both flexibility and certainty. Flexibility in that the parties can, for example, choose the seat of the arbitration, the choice of law and the venue; and certainty that if the agreement falls apart there is an agreed-upon mechanism to resolve the issue.

Parties are free to choose whichever arbitral institution they deem fit. They have the certainty that, whichever body they choose, any referral to arbitration will be governed by a set of clearly defined and accessible rules.

The Approach of the Arbitral Institutions

In the UK, the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) are two arbitral institutions frequently used for banking and finance arbitrations. Their respective rules differ in their approaches to the confidentiality of the arbitration proceedings.

The ICC Rules of Arbitration do not automatically provide that its proceedings are confidential. Rather, the onus is on the parties to agree on what approach to take. If the parties cannot agree, they can request the tribunal to “make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information”.

By contrast, the LCIA Arbitration Rules are more prescriptive and impose on the parties a “general principle to keep confidential all awards in their arbitration, together with all materials in the proceedings created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain …”.

In the United States, the American Arbitration Association (AAA) and the Financial Industry Regulatory Authority (FINRA) take a broadly similar approach to the ICC when it comes to confidentiality. The AAA makes it clear that it “takes no position on whether parties should or should not agree to keep the proceeding and award confidential between themselves. The parties always have a right to disclose details of the proceeding, unless they have a separate confidentiality agreement. The expectation, therefore, is that if the parties want the arbitration to be subject to confidentiality rules, they need to draft them themselves. Similarly, FINRA imposes no duty of confidentiality on parties, though it can order parties to sign confidentiality agreements in respect to specific sensitive data.

Implied duty of confidentiality

The law which governs any arbitration can make an important difference. In the UK, the Arbitration Act 1996 makes no provision for confidentiality but English case law has established an implied duty of confidentiality. Broadly speaking, the parties to the arbitration and the tribunal are under implied duties to preserve the confidentiality of the hearing as well as documents generated during the course of and disclosed during the proceedings, including the award.

By contrast in the US, there is no such general implied duty of confidentiality.

Practical Steps

•  Consider what aspects of confidentiality are important in the case in question
•  Put wording in the arbitration clause of your agreement which covers all aspects of the confidentiality of any arbitration (as opposed to the confidentiality of the agreement)
•  Check that the governing law you choose for the agreement is advantageous for confidentiality rights
•  Check the rules with regard to confidentiality of whichever arbitration institution you choose