Confidentiality in Arbitration

Confidentiality in Arbitration:

A Comparative Analysis of confidentiality in German and English Law.

-Chris Berger^[1]

“When both sides agreed that information should be kept from the public that was when the court had to be most vigilant. The need to be vigilant arises from the natural tendency for the general principle to be eroded and for exceptions to grow by accretion as the exceptions are applied by analogy to existing cases…”^[2]

-Sir Christopher Staughton

(The Court of Appeal - Civil Division, 1998; Transcript No 431)

(A) Introduction - Summary

Confidentiality and privacy in Arbitration appear to be self-evident and implied, nevertheless following analysis remain more proverbial than factual. Michael Fesler (2012) in The Extent of Confidentiality in International Commercial Arbitration or Hong-Lin Yu (2012) in Duty of Confidentiality: Myth and Reality, underline that arbitration can be a viable alternative to litigation in commercial disputes as in addition to the enforceability of arbitration awards, “[…] confidentiality is one of the main reasons why the parties have chosen arbitration.”^[3] L. Yves Fortier in The Occasional Unwarranted Assumption of Confidentiality (1999) raises the issue of the importance of the ‘assumption’ of confidentiality which is implied by the choice of businesses to choose arbitration over litigation, as he raises the question that “Is it not one of the most important of the perceived advantages of arbitration and one of the main reasons why businesses around the world have made arbitration the forum of choice for the resolution of international commercial disputes?”^[4] The extent of which the duty of confidence in arbitration applies however, is highly disputed and approached differently in each respective national jurisdiction. The importance of this analysis is underlined by the 2010 International Arbitration Survey by international law firm White & Case and the Queen Mary University of London, which highlights a common misconception amongst companies in regards to confidentiality in arbitration, as “[…] 50% of respondents erroneously believe that arbitration is confidential even where there is no specific clause.”^[5]

This essay will compare and contrast the extent of confidentiality in commercial arbitration in two developed countries with great significance to the international business community; the United Kingdom and the Federal Republic of Germany. It will critically assess the extent of confidentiality in English and German arbitration, by contrasting confidentiality in:

- Privacy in Arbitral Proceedings; and
- Disclosure of documents

The analysis will reveal contradictory conclusions as principles of confidentiality among both jurisdictions are “[…] sporadic and inconsistent.”^[6]

Formally, the German Zivilprozessordnung (ZPO) offers a greater extent of privacy and a higher degree of flexibility necessary through devolving confidentiality to the autonomy of the parties. Restricting ad hoc court intervention to a minimum and offering numerous provisions for an expedient arbitral resolution such as ‘amicable solutions’, ban on ‘fishing expeditions’ and ‘supportive-functions’ of German courts, appeals to certain industry sectors and companies.

In comparison, English stare decisis, such as upheld by Leggat L.J. in Oxford Shipping Co Ltd v Nippon Yusen Kaisha^[7], offers a blanket notion of privacy, favouring industries such as the banking sector or state parties, by affirming confidentiality as implied by arbitration. Contrastingly however, English arbitration laws do not enable parties to gain advantage, due to the lack of jurisdiction by national courts or the inability to impose an oath on witness testimony, such as the case in Germany. Due to the autonomy rendered to parties through appealing an arbitral award such as substantive jurisdiction or an appeal on the point of law, English arbitration law is able to ensure that ‘the cloak of confidentiality’ “[….] must yield to the yet more fundamental principle that the chief object of courts must be to secure that justice is done.”^[8]

The essay thus underlines that it refrains from concluding a generalized assumption, as business efficacy is guaranteed in both countries, however ultimately the “[…] result depends on the nature of the contract and the relative bargaining positions of the parties”^[9] as each contracting party has to choose the governing law carefully, bearing in mind the particularities of the contract.

(B) Privacy in Arbitral Proceedings

International law firm White & Case in their 2010 International Arbitration Survey underline that “[…] arbitration is increasingly porous as there is a greater public interest in arbitration”^[10] and concluded following an international survey, that companies therefore place a great emphasis on the privacy of arbitral hearings. Bearing in mind that confidentiality without privacy would not be possible as “[…] confidentiality is impossible without privacy, and privacy without confidentiality is meaningless,”^[11] it is firstly important to analyse privacy in the respective jurisdictions, as it give rise to the greater and comprehensive notion of confidentiality

English jurisprudence and the German ZPO apply the notion of privacy in arbitration as implicit of the choice of parties to arbitrate rather than litigate. Mr. Justice Brookings in Esso/BHP v Plowman defined privacy thus as “[…] persons whose presence is not necessary or expedient for the proper conduct of the proceedings.”^[12] The German Code on Court Constitution § 169, 1 GVG^[13] (Gerichtsverfassungsgesetzt) underlines that civil court proceedings and rulings are public, whilst as the Düsseldorf Chamber of Commerce and Industry (IHK) reminds that arbitration is generally non-public if the parties have not agreed otherwise as “The process is not public, and is to be treated as confidential by the parties, so that no individual can pass details to the public.”^[14] Thus both jurisdictions ensure that hearings and proceedings enjoy privacy and are held in camera unless otherwise agreed to by the parties, rendering arbitration by business highly favourable in each respective jurisdiction.

German arbitration scholar Ralf A. Schütze (1990) in Handbuch des Schiedsverfahrens underlines the provisions of §§ 172 of Gerichtsverfassungsgesetz which give rise to the few exceptions in litigation to exclude the public and restrict the publicity of the trial such as “[…] a threat to national security, public order or morality…”^[15] The exceptions also include sensitive commercial matters to which courts can exclude the public and continue hearings in camera, as it is clearly stated in §§ 172 such as “[…] if an important business-, operational-, inventive-, or tax classified document is disclosed and would, by disclosure, damage overarching economic interests.”^[16] Fundamentally however, Schütze reminds that the privacy of a court hearing held in camera under §§ 172 cannot in any way replace the extent of privacy enjoyed in a German arbitration hearing as “The exclusion of the public is one of the principal reasons for the choice of the practice of Arbitration,”^[17] reiterating the appeal of companies to arbitrate rather than litigate in Germany.

Dr. KyriakiNoussia (2010),Arbitration and International Commercial Law Consultant, in Confidentiality in International Commercial Arbitration, highlights that the German ZPO has adopted the approach of endorsing the notion of privacy as a corollary of party autonomy in order to ensure business efficacy and leniency for the governing contracts through rendering the starting point of arbitration to the autonomy of the parties. Noussia underlines that the authority and fundamental nature of arbitration is embedded in § 1042 ZPO which establishes the starting point of every arbitration through ‘party autonomy’, since “The Parties are treated equally, without prejudice. Every party has the right to due process of law.”^[18] In addition, the analysis underlines that parties are also granted the autonomy to “[…] provide for the procedure, subject to the mandatory stipulations set out in the present Book, or by making reference to existing rules of arbitration,”^[19] thus rendering the starting point of arbitration in the German ZPO to the autonomy of parties.

The German Institute of Arbitration^[20] endorses Germany as highly favourable towards business efficacy due to the extent of autonomy enjoyed by the arbitrating parties. Prof. Dr. Karl-Heinz Böckstiegel, Honorary Chairman of the German Institute of Arbitration underlines the flexibility of German arbitration law in Germany as a Place for International and Domestic Arbitrations (2009) as “German arbitration law is, to a large extent, governed by party autonomy,”^[21] thus recognizing the right of each distinctive party to choose the degree of privacy and thus the resulting confidentiality^[22].

It also has to be underlined that English jurisprudence guarantees privacy in relation to arbitral proceedings, fundament however the principle as a corollary of confidentiality, contrastingly to the German approach. In Glidepath BV and others v Thompson, Judge Colman refused to grant an application by a third party for copies of the proceedings as he reminded “[…] it is important that the courts do not allow vague principles of open justice to cause them to pay mere lip service to the privacy of arbitration proceedings,”^[23] thus upholding the principle of privacy in relation to arbitral proceedings. Judge Mance in Department of Economic Policy & Development of the City of Moscow vs Bankers Trust Co. upheld the principle of privacy in favour of business efficacy as the main factor that distinguished England from other jurisdictions as “[…] court hearing should take place, so far as possible, without undermining the reasons of inter alia privacy…for which parties choose to arbitrate in England.”^[24]

Michael Hwang S.C., Chartered Arbitrator in Singapore, reminds in Defining the Indefinable: Practical Problems of Confidentiality in Arbitration (2009) that the Civil Procedure Act 62.10 (3b)^[25] embodies the principle of privacy as only the appeal on the point of law of an arbitral award under Section 69 may be heard public, as it reads “[…] an appeal under section 69 of the 1996 Act on a question of law arising out of an award, will be heard in public; and (b) all other arbitration claims will be heard in private.”^[26]

English legislation regarding the privacy of arbitral hearings is therefore more comprehensive than its German §§ 172 ZPO counterpart, as it clearly provides a ‘carte blanche’ for privacy with the mere exception of a question arising on the point of law. The German ZPO does not feature such provisions of privacy in court subpoenas or appeals of the arbitral award, underlining the inclination of companies to arbitrate in England.

Hew R. Dundas International Arbitrator and former President of the Chartered Institute of Arbitrators in Confidentiality in English Arbitration: The Final Word? Emmott vs. Michael Wilson & Partners Ltd. (2008) concludes that England has become more favourable for companies to arbitrate as it ensures a higher degree of privacy which can provide business efficacy as “English jurisprudence on this subject…is much richer than that of any other important arbitration centre.”^[27] Dundas explicitly refers to Russell v Russell which clearly upholds a broad and comprehensive standard of privacy as Sir George Jessel outlines that“[…] as a rule, persons enter into [arbitration] contracts with the express view of keeping their quarrels from the public eye.”^[28]

It is thus underlined that English arbitration provides greater jurisprudence on privacy as Potter LJ states “[…] the obligation of confidentiality arises as an essential corollary of the privacy of arbitration proceedings”^[29] and thus provides the necessary legal framework for accommodating disputes amongst commercial parties.

[...]

^[1] The author is currently a graduating LL.M International Commercial Law Student at the University of Kent and following graduation, pursuing a Doctor iurisprudentiae in Germany.

^[2] Quoted by Sir Christopher Staughton in Regina -v- Westminster City Council, Ex parte P; 1998 and mentioned by Judgment 13 / 2004 – IFS Investments Ltd. v Manor Park (Guernsey) Ltd., Manor Park Guaranteed Investment Funds Ltd., Williams and Dinning – Royal Court - (Civil Action file 817) 22nd April 2004.

^[3] Yu, Hong-Lin. Duty of Confidentiality: Myth and Reality. Civil Justice Quarterly. Vol.31, No.1, 2012. Page 68.

^[4] Fortier, L. Yves. The Occasional Unwarranted Assumption of Confidentiality. Arbitration International. Vol. 15, No. 2. 1999, Pages 131.

^[5] White & Case. 2010 International Arbitration Survey: Choices in International Arbitration. Queen Mary University of London. Page 3.

^[6] Thomson, Claude R & Finn, Annie M.K. Confidentiality in Arbitration: A Valid Assumption?

A Proposed Solution! Dispute Resolution Journal.Vol.,62, No.2, 2007.American Arbitration Association, New York, USA.Page 3.

^[7] Leggat L.J. remarked that due to fact that parties chose arbitration over litigation, that privacy is ensured in arbitration as “It is implicit in this that strangers shall be excluded from the hearing and conduct of the arbitration.” Quoted in Lavers, Anthony & Bellhouse, John. International Arbitration – Privacy and Con fi dentiality. Page 2.

^[8] Court of Appeal, England and Wales. Department of Economic Policy & Development of the City of Moscow vs Bankers Trust Co. March 24th, 2004. Ipso Facto. Accessed 27/03/2012. <http://www.ipsofactoJ.com/international/index.htm>. Page 4.

^[9] Supra 4, Page 2.

^[10] Supra 2, Page 31.

^[11] Noussia, K. Confidentiality in International Commercial Arbitration. Springer-Verlag, Berlin Heidelberg, Germany, 2010, Page 38.

^[12] Supra 7, Page 7.

^[13] German German Code on Court Constitution § 169 1 GVG: “Die Verhandlung vor dem erkennenden Gericht einschließlich der Verkündung der Urteile und Beschlüsse ist öffentlich. Ton- und Fernseh-Rundfunkaufnahmen sowie Ton- und Filmaufnahmen zum Zwecke der öffentlichen Vorführung oder Veröffentlichung ihres Inhalts sind unzulässig.”

^[14] Industrie- und Handelskammer Düsseldorf. Schiedsgerichtsbarkeit: Die Schiedsgerichtsordnung der IHK zu Düsseldorf. Recht und Steuern. Düsseldorf, Germany 2013. Page 3. [Transl. Das Verfahren ist nicht öffentlich und von den Beteiligten vertraulich zu behandeln, so dass keine einzelnen Details nach außen dringen können.]

^[15] Bundesrepublik Deutschland. §§ 172 Gerichtsverfassungsgesetz (GVG). [Transl. Das Gericht kann für die Verhandlung oder für einen Teil davon die Öffentlichkeit ausschließen, wenn:... eine Gefährdung der Staatssicherheit, der öffentlichen Ordnung oder der Sittlichkeit zu besorgen ist..]

^[16] Supra 10, Page 2. [Transl.“ein wichtiges Geschäftes-, Betriebs-, Erfindungs-, oder Steuergeheimnis zur Sprache kommt, durch dessen öffentliche Erörterung überwiegende schutzwürdige Interessen verletzt”]

^[17] Schütze, Rolf A. & Tscherning, Dieter. Handbuch des Schiedsverfahrens: Praxis der deutschen und internationalen Schiedsgerichtsbarkeit. Gruyter Verlag. 2nd Edition. Berlin, Germany 1990. Page 10. [Transl.“Der Ausschluss der Öffentlichkeit ist einer der in der Praxis wesentlichen Gründe für die Wahl der Schiedsgerichtbarkeit”]

^[18] Bundesrepublik Deutschland. Zivilprozessordniung (ZPO). Accessed 15/04/2012.

<http://www.jura-lotse.de/Jurskript/jurskript149.shtml>. Page 2. [Transl. “Die Parteien sind gleich zu behandeln. Jede Partei ist rechtliches Gehoer zu verschaffen.”]

^[19] Bundesrepublik Deutschland. Zivilprozessordniung (ZPO). Accessed 15/04/2012.

<http://www.jura-lotse.de/Jurskript/jurskript149.shtml>. Page 2. [Transl. “Im Übrigen können die Parteien vorbehaltlich der zwingenden Vorschriften dieses Buches das Verfahren selbst oder durch Bezugnahme auf eine schiedsrichterliche Verfahrensordnung regeln.”]

^[20] Deutsche Institution für Schiedsgerichtsbarkeit e.V. (DIS)

^[21] Boeckstiegel, K.H. & Nacimiento, P. Germany as a Place for International and Domestic Arbitrations – General Overview. Transnational Dispute Management (TDM). January 2009. Page 18.

^[22] See BGH 01.03.2007 – III ZR 164/06 (http://lexetius.com/2007,406): The Federal Supreme Court upheld an arbitral award and reminded that parties are free and autonomous to decided their own arbitral procedure: “Moreover, the parties may - subject to the mandatory provisions of the Tenth Book of the Code of Civil Procedure - govern the procedure itself (§ 1042 ZPO Section 3).”

^[23] Queen’s Bench Divison. Glidepath BV and others v Thompson and others. [2005] EWHC

818 (Comm), 963. April 24th, 4th May 2005. Page 6.

^[24] Supra 4, Page 5.

^[25] Civil Procedure Act 62.10 (1b) reads: “The court may order that an arbitration claim be heard either in public or in private.” & (3b) reads “(b)all other arbitration claims will be heard in private.”

^[26] English Parliament. The English Arbitration Act of 1996. Pages 23.

^[27] Dundas, Hew. R. Confidentiality in English Arbitration: The Final Word? Emmott vs.

Michael Wilson & Partners Ltd. Chartered Institute of Arbitrators. Journal of Arbitration. Vol.74, 2008. Pages 460. [Full Quote: It is apparent that the English jurisprudence on this subject (as distinct from the confidentiality of awards, which is much discussed in other countries) is much richer than that of any other important arbitration centre, and that it constitutes a major contribution to the development of the law of international arbitration.]

^[28] Supra 17, Page 460.

^[29] Supra 17, Page 462.