In 2016, the Law Commission of England and Wales announced that it was considering reform of the English Arbitration Act 1996 (AA 1996) as part of its 13th Programme of Law Reform. Such reform was said to be driven by a desire to ensure that English law keeps up to date with modern arbitral practice so as to compete with other jurisdictions. The consultation for such reform is now underway.
Various areas of reform have been proposed, ranging from express provision for the adoption of summary judgment procedures to allowing for the arbitration of trust disputes. In recent months, there has also been an increasing body of commentary surrounding the issue of confidentiality, specifically, whether the reform of the AA 1996 provides a crucial opportunity to reverse the presumption of confidentiality in arbitral proceedings under English law.
A call for greater transparency
The advantages of confidentiality in arbitration proceedings are well understood. The preservation of sensitive commercial and proprietary information, coupled with the ability to preserve an existing commercial relationship, for example, are two factors favouring the maintenance of confidentiality in arbitration proceedings.
However, there is little doubt that the issue of confidentiality in arbitration has garnered significant public attention in recent years. In particular, the investor-state dispute settlement (ISDS) regime has come under intense scrutiny over its effectiveness as a means of settling investor state disputes. One of the main criticisms has been the perceived lack of transparency of the system. The system is viewed by many as being shrouded in secrecy, notwithstanding the public interest considerations often at play. One only has to think back to the negotiation of the Trans-Pacific Partnership (TPP), and the public outcry sparked by its draft ISDS mechanism, to illustrate this point.
Mounting pressure has prompted the development of transparency regimes across the ISDS landscape. In the investment arbitration environment, the United Nations Commission on International Trade Law (UNCITRAL) has introduced new transparency standards by increasing public access to its arbitral proceedings. Likewise, the International Centre for Settlement of Investment Disputes (ICSID), North American Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA) have also sought to make their proceedings more transparent. At the same time, in the inter-state context, both the International Court of Justice (ICJ) and Permanent Court of Arbitration (PCA) have taken steps to increase the transparency of their proceedings.
The question that remains, however, is whether such criticism has any place in international commercial arbitration and whether there remains a case for commercial disputes involving private parties to be resolved behind closed doors.
The existing regime
The AA 1996 is silent on the question of confidentiality. At the time the legislation was drafted, it was thought that any statutory statement of general principles in this area would impede the “commercial good-sense of current practices in English arbitration” and that the evolution of such principles was better left to the common law. This justification may no longer suffice 20 years on.
Under English law, parties to arbitration have an implied duty to maintain the confidentiality of the proceedings. This extends to the hearing, the documents and submissions generated (and disclosed) in the dispute, and the award ultimately rendered by the tribunal. Although there are a number of exceptions to this obligation (for example, where disclosure is in the interest of justice), in practice, it means that arbitrations seated in London attract a presumption of confidentiality.
Transparency considerations aside, one of the most serious consequences of the current framework has been the dearth of published arbitral decisions. Unlike investor state disputes, in which parties can avail themselves of a wealth of decisions rendered by preeminent arbitral tribunals, commercial arbitration conducted under English law has been left to rely almost entirely on case law rendered by the English courts. With the increase in arbitration, where decisions more often than not remain confidential, the development of that case law has, arguably, been constrained. This is particularly true of sectors where arbitration is the most popular, if not default, mechanism for dispute resolution, such as in the construction, insurance and shipping industries. During his time as Lord Chief Justice, Lord Thomas of Cwmgieedd argued that the diversion of more claims from the courts to arbitration has “reduce[d] the potential for the courts to develop and explain the law”, as well as having “retard[ed] public understanding of the law, and public debate over its application”. At the same time, only a relatively small number of appeals from arbitral awards come before the English courts under section 69 of the AA 1996.
On a practical level, the absence of publicly available arbitral decisions has also meant that the appointment of arbitrators rests heavily on the recommendations and advice of external counsel. As once noted by Sir Bernard Rix, “the absence of transparency means that we simply do not know how arbitrators perform the role of fact-finders, or the role of contract interpreters”. Given that a key draw of arbitration is meant to be the ability to appoint one’s own arbitrator, greater transparency in these areas would be welcome.
Shifting the presumption of confidentiality
Confidentiality is often cited as one of the most valued components of international commercial arbitration. However, it is not necessarily the driving factor that it is made out to be. The 2015 Queen Mary survey placed “confidentiality and privacy” fifth in its ratings of the top three most valuable characteristics of international arbitration. Enforceability, avoiding specific legal systems, flexibility and arbitrator selection all took priority. These results suggest that confidentiality is important for some, albeit one of a number of factors in deciding to arbitrate.
If arbitration is to continue to develop, it is important that it remains cognizant of public demand, as well as the legal and commercial environment in which it operates. A possible solution might be the publication of anonymised awards, a framework that has been proposed by Sir Bernard Rix. However, there is a real question about the utility of anonymised awards given that the party names, descriptions and certain contextual information will have been removed. At the same time, there remains a concern that third parties in the know will be able to identify the parties through their own investigation of the facts of the dispute set out in the award.
One solution may be to create a default “opt-in” system, requiring parties to expressly provide for confidentiality in their arbitration agreements, in the absence of which the proceedings shall not be treated as confidential. A default position in favour of transparency could have a powerful impact. Choice architecture (a term coined by Richard Thaler and Cass Sunstein in Nudge: Improving Decisions about Health, Wealth, and Happiness) suggests that the way in which choices are presented to people has a determinative effect on their decision-making and that designating a default position can “nudge” them towards a particular choice. Notably, this is said to be true even where the default position is maintaining the status quo. Organ donation is the classic example of a default framework, in which systems of presumed consent have proven to be very effective.
Certain jurisdictions have already taken steps to create a default confidentiality regime. For example, Australia and Hong Kong operate frameworks in which there is an automatic presumption of confidentiality over arbitral proceedings, unless the parties “opt out” of this framework. However, this system neither alleviates the existing concerns surrounding transparency, nor rectifies the shortage of published arbitral decisions.
In contrast, the proposed opt-in system has the potential to create a far more transparent regime by dissuading arbitration users from taking steps to render their proceedings confidential. To have that effect, the AA 1996 would need to be amended to require parties expressly to provide for confidentiality in their arbitration agreements (with such amendments having prospective effect in the interest of fairness). The scope of that agreement would then be left to the parties to decide. They may choose to draft the provision in general terms, so that all proceedings, documents and awards are automatically treated as confidential. Alternatively, parties may choose to include a more comprehensive provision outlining the extent of the confidentiality agreement. For example, the 2016 UNCITRAL Notes on Organizing Arbitral Proceedings, suggest that parties might choose to specify:
- The material or information that is to be kept confidential (such as the fact of the arbitration, the identities of the parties and arbitrators, pieces of evidence, submissions and the content of the award).
- Measures for maintaining the confidentiality of such information and the duration of such obligation.
- The circumstances in which confidential information may be disclosed.
In practice, the above shift would have little impact on the appeal of arbitration as a means of resolving commercial disputes and London as a seat of arbitration. Arbitration is, first and foremost, a consensual process, and this would continue to be the case under the proposed framework as it would remain open to parties to keep their proceedings confidential. The proposed regime would also not prevent parties from mutually agreeing at a later stage that the proceedings should be confidential (provided both sides are agreeable).
The call for transparency in commercial arbitration is growing. That call may soon be satisfied through the proposed reform of the AA 1996.
This article first appeared on the Practical Law Arbitration Blog on 31 July 2017.