CONFIDENTIALITY IN ARBITRATION AND PRIVATE SETTLEMENT OF COMMERCIAL AND INVESTMENT DISPUTES

INTRODUCTION

In the ever-complex landscape of dispute resolution, confidentiality stands as a distinguishing feature that sets arbitration and other alternative dispute resolution mechanisms apart from traditional litigation. [1] While conventional courtroom proceedings more often than not unfold under the watchful eyes of the public, arbitration offers parties a discreet avenue to resolve their differences away from public scrutiny and opinion. This confidentiality has historically been viewed as one of arbitration’s most valuable attributes, particularly in commercial and investment disputes where sensitive business information, trade secrets and reputations hang in the balance. [2]

Yet, as global commerce evolves and the transparency demands grow louder, this sacred principle of confidentiality faces unprecedented scrutiny. Critics argue that the veil of secrecy surrounding arbitration proceedings may undermine their legitimacy and public accountability, especially in cases involving significant public interest or State parties [3]. This tension between confidentiality and transparency has ignited vigorous debates among practitioners, scholars and relevant stakeholders worldwide, thereby questioning whether absolute confidentiality remains appropriate in modern arbitration and dispute resolution mechanisms. This article delves deep into the principle of confidentiality in arbitration and private settlement, examining its scope, significance and challenges in view of commercial and investment disputes.

THE SCOPE AND SIGNIFICANCE OF CONFIDENTIALITY IN ARBITRATION

Understanding the principle of confidentiality has to begin with its precise definition. The Black’s Law Dictionary defines it to mean information “entrusted with the confidence of another or with his secret affairs or purposes; intended to be held in confidence or kept secret.” Merriam-Webster similarly defines it succinctly as “Private, Secret.”

Fundamentally, confidentiality implies the duty to protect certain information from unauthorized disclosure, ensuring the security of sensitive or proprietary data across various fields, including law, healthcare, business, and personal relationships. [4] This principle undoubtedly serves several crucial purposes which include:

1. Protects Business Interests: Confidentiality safeguards sensitive business information, such as trade secrets, financial details, and proprietary strategies, preventing them from being exposed to competitors or the public. [5]
2. Encourages Open Dialogue: Parties may be more willing to negotiate and make concessions in a private setting, knowing that admissions or strategies will not become public record.
3. Preserves Reputations: Confidentiality allows parties, particularly businesses and high-profile individuals, to resolve disputes without the reputational risks associated with public litigation.
4. Ensures Procedural Efficiency: Confidentiality can reduce external interference and media scrutiny, enabling a more focused and expedited resolution process.

Despite these crucial advantages, the extent of confidentiality in arbitration varies across jurisdictions and institutional rules. Some legal systems impose strict obligations on parties and arbitrators to maintain confidentiality, while others adopt a more flexible or limited approach.

LEGAL APPROACHES TO CONFIDENTIALITY IN ARBITRATION

The principle of confidentiality is interpreted differently across various jurisdictions and arbitral institutions. In the opinion of the writers, there are three main interpretations to wit:

1. Implied Confidentiality

Some jurisdictions recognize confidentiality as an inherent feature of arbitration, even in the absence of an explicit agreement. The relevant jurisdictions include;

The United Kingdom

The principles of confidentiality in the arbitration of commercial disputes in England are primarily established through three landmark cases: Dolling-Baker v. Merrett [6], Hassneh Insurance v. Steuart J Mew [7], and Ali Shipping Corp v. Shipyard Trogir [8].

In the case of Dolling-Baker, the Court of Appeal first articulated the critical importance of privacy in arbitration, establishing that arbitration contracts inherently contain an “implied duty of confidentiality”. The court mandated that documents prepared and used in the arbitration proceeding cannot be disclosed or used for other purposes without the other party’s consent or a court’s authorization. Crucially, this implied duty of confidentiality was not contingent on the confidential nature of the information being protected.

Flowing from the above, the case of Hassneh further expanded this principle by extending the confidentiality requirement to include arbitral awards. The Commercial Court emphasized that revealing materials prepared for arbitration would be tantamount to allowing third-party undue access to the arbitration process, thereby undermining its fundamental privacy.

Finally, the case of Ali Shipping Corporation solidified the aforementioned decisions by definitively stating that the obligation of confidentiality is a legal mandate and not merely a “matter of custom or business convenience”. The court further underscored that confidentiality is an essential and intrinsic corollary of arbitration’s private nature.

France

French courts generally uphold the implied approach to the principle of confidentiality in the arbitration of commercial disputes. This is particularly evident in the rationale of the Paris Court of Appeal in the case of Aita v. Ojjeh [9], the Paris Court of Appeal was urged to invalidate an arbitral award delivered in the United Kingdom. Dismissing this claim, the court highlighted that annulling the award would violate the duty of confidentiality. The Honourable Court was of the opinion that the annulment proceeding was a malicious attempt aimed at disclosing confidential materials from the arbitration, thus violating the duty of confidentiality.

Pertinently, France enacted an amendment of its arbitration law in 2011 which established the duty of confidentiality for domestic arbitration but surprisingly not for international commercial arbitration unless the parties consent. [10] Thus, it goes without saying that the implied principle of confidentiality in France is not as stringent as what is obtainable in the UK.

2. Contractual Confidentiality

However, other legal systems treat confidentiality as merely a contractual obligation, meaning it only applies if expressly agreed upon by the parties. Legal systems in this regard include;

The United States

Unlike the approach in England, American jurisprudence offers a different perspective on confidentiality in the arbitration of commercial disputes. Two pivotal cases namely; the United States v. Panhandle Eastern Corporation [11] and Contship Containerlines v. PPG Industries [12], have fundamentally challenged the notion of an implied duty of confidentiality. The courts explicitly rejected the presumption that confidentiality is an inherent characteristic of arbitration, particularly in the absence of an express confidentiality agreement.

In a similar vein, the Federal Arbitration Act does not impose a general duty of confidentiality. Instead, parties must include confidentiality clauses in their arbitration agreements to ensure privacy. [13]

Sweden

In the case of Bulgarian Foreign Trade Bank Ltd v. A.I. Trade Finance Inc., [14] the Swedish Supreme Court ruled that parties to an arbitration are not bound by confidentiality and have no obligation to keep the existence of the arbitration confidential. Consequently, under Swedish law, confidentiality is not implied in arbitration agreements and must be expressly provided for.

3. Limited Confidentiality

Some jurisdictions recognize certain limitations and exceptions to confidentiality in arbitration, particularly when public interest is at stake. Such jurisdictions include:

Australia

Section 14C of New Zealand’s Arbitration Act [15] outlines several exceptions to the principle of confidentiality, confirming that the duty of confidentiality is not absolute. Notably, Section 14C(a) permits the disclosure of confidential information to the parties’ professional or other advisers.

Having looked at various foreign jurisdictions, the writers would be remiss not to turn their attention back home i.e. Nigeria. Upon a review of the Arbitration and Mediation Act, 2023 the most notable mention of “confidentiality” pertains to Mediation, another alternative dispute mechanism, specifically contained in the provisions of Section 76 which provides thus;

“Unless otherwise agreed by the parties, all information relating to mediation proceedings shall be kept confidential, except where disclosure is required under the law –

(a)  Under the law

(b)  For the purposes of implementation or enforcement of a settlement agreement

(c)   Necessary in the interests of preventing or revealing –

(i)           The commission of a crime (including an attempt or conspiracy to commit a crime)

(ii)          Concealment of a crime, or

(iii)         A threat to a party; or

(d)  Necessary to protect public order, but only under the conditions and in the scope prescribed by law”

Flowing from the above, it is the humble opinion of the writers that Nigeria is of the limited confidentiality interpretation.

CHALLENGES TO CONFIDENTIALITY IN ARBITRATION

The absolute nature of confidentiality in arbitration has often been challenged by prominent legal scholars and jurists alike. As Emmanuelle Gaillard and John Savage astutely observed; “Confidentiality will never be absolute: a small circle of people will be aware of the award and that circle will grow if the award gives rise to litigation before the courts and thereby becomes public.” [16]

This reality raises pertinent questions about whether strict confidentiality ultimately serves or undermines the arbitral process. Lord Mance of the UK Supreme Court presents a particularly compelling critique of absolute confidentiality in arbitration. According to him;

“Once however we come to awards which are concerned with standard forms of contracts, or jurisdictional issues, or principles of law, or important forms of interim relief, the lack of publication, the lack of transparency, the difficulty or impossibility of getting such awards into the public domain, a fortiori in the light of institutional rules which bar any challenge or appeal to the courts whatsoever, mean that our commercial law is going underground. As more and more international commercial cases go to arbitration rather than the courts, we are more and more losing sight of the basic feedstock of our commercial law.” [17]

The traditional notion of confidentiality faces several challenges in the modern legal and commercial landscape which include;

1.    Public Interest Concerns

Confidential arbitration can be problematic when disputes involve state entities, regulatory matters, or issues affecting the general public. For example, arbitrations between investor and state parties often involve government policies and public funds, raising legitimate concerns about transparency and accountability. [18]

2.    The Growing Demand for Transparency

International institutions, such as the United Nations Commission on International Trade Law (UNCITRAL), have introduced transparency rules for investor-state arbitration, requiring public disclosure of certain arbitration details. [19]

Similarly, organizations like the International Centre for Settlement of Investment Disputes (ICSID) have implemented measures to enhance transparency while balancing confidentiality conundrum.

3.    Judicial and Enforcement Proceedings

Arbitration awards may need to be enforced through traditional courts [20], where confidentiality can be compromised. Courts often require the disclosure of arbitral awards and related documents during enforcement or appeal proceedings, making absolute confidentiality difficult to maintain.

4.    Third-Party Interests and Participation

In commercial and investment disputes, third parties such as creditors, regulators or even communities may have an interest in the outcome of the arbitral proceedings. Calls for greater transparency have led to increased debates on whether third parties should have access to arbitration proceedings or decisions. [21]

CONCLUSION

In light of the repeated clamour for transparency, the principle of confidentiality in the arbitration of commercial disputes stands at a crucial crossroads. While it remains the cornerstone of alternative dispute resolution, offering much needed protection for business interests and facilitating honest negotiations among parties, the modern landscape demands a more nuanced approach. So much so that the varying interpretations across numerous jurisdictions underscore the efforts towards such nuanced approach.

Looking forward, the future of confidentiality in arbitration likely lies in striking a delicate balance between both the private interests that make arbitration attractive and the public interest of transparency and accountability. In finding this balance, contemporary arbitral process must adapt and ensure to preserve the fundamental qualities and benefits that have made it a preferred method of commercial and investment dispute resolution. This adaptation will undoubtedly be crucial in maintaining arbitration’s legitimacy and effectiveness in the years to come.

Please note that the foregoing does not in any way constitute legal advice. Please kindly contact the underlisted persons for any legal advice on the subject matter:

REFERENCES

[1] https://loyalnigerianlawyer.com/the-significance-of-confidentiality-in-arbitration-proceedings/ accessed on the 2^nd of February, 2025.

[2] https://aria.law.columbia.edu/confidentiality-in-international-commercial-arbitration-determining-factor-for-safeguarding-the-legitimacy-of-the-process/ accessed on the 2^nd of February, 2025.

[3] https://www.lextalk.world/post/confidentiality-in-international-commercial-arbitration-undermines-the-legitimacy-of-the-process accessed on the 3rd of February, 2025.

[4] https://library.fiveable.me/key-terms/introduction-law-legal-process/confidentiality accessed on the 3rd of February, 2025.

[5] https://bylawstoday.blog/confidentiality-in-arbitration/ accessed on the 3^rd of February, 2025.

[6] (1990) 1 WLR 1205, 1213 (K.B.).

[7] (1993) 2 Lloyd’s Rep. 243 (K.B.)

[8] (1998) 2 All ER 136 (K.B.).

[9] Cour d’appel [CA] [regional court of appeal] Paris, 4 REVUE DE L’ARBITRAGE 584, Feb. 18, 1986.

[10]https://arbitrationblog.kluwerarbitration.com/2018/09/23/confidentiality-in-international-commercial-arbitration-truth-or-fiction/ accessed on the 4^th of February, 2025.

[11] https://law.justia.com/cases/federal/district-courts/FSupp/693/88/2357100/ accessed on the 4^th of February, 2025.

[12] https://journals.law.harvard.edu/hnlr/wp-content/uploads/sites/91/HNR203_crop-1.pdf accessed on the 4th of February, 2025.

[13] https://natlawreview.com/article/common-misconceptions-about-confidentiality-arbitration-proceedings accessed on the 4th of February, 2025.

[14] Nytt Juridiskt Arkiv [NJA] [Supreme Court Reports] 2000 p.147 T 1881–99 (Swed.).

[15] New Zealand Arbitration Act, 1996

[16] https://www.lextalk.world/post/confidentiality-in-international-commercial-arbitration-undermines-the-legitimacy-of-the-process accessed on the 3rd of February, 2025.

[17] ibid 16

[18] https://thelegalquorum.com/confidentiality-vs-public-interest-in-arbitration/ accessed on the 4^th of February, 2025.

[19]https://ccsi.columbia.edu/sites/default/files/content/UNCITRAL_Rules_on_Transparency_commentary_FINAL.pdf  accessed on the 4^th of February, 2025.

[20]https://www.bing.com/search?q=Arbitration+awards+may+need+to+be+enforced+through+traditional+courts%2C+where+confidentiality+can+be+compromised. Accessed on the 4^th of February, 2025.

[21]https://law.unimelb.edu.au/__data/assets/pdf_file/0003/4805049/04-Garnett-154.pdf accessed on the 4th of February, 2025.