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Is Arbitration Confidential?

It is generally assumed as a matter of commercial dealings that arbitration proceedings will be both private and confidential.

The first assumption is essentially correct. Arbitrations are private in that third parties who are not a party to the arbitration agreement cannot attend any hearings or play any part in the arbitration proceedings.

The second assumption, since the 1990s, is not. Confidentiality – which is concerned with the parties’ obligation to each other not to disclose information concerning the arbitration to third parties (and the arbitrator’s like obligations to the parties) – does not apply to arbitration as an all-encompassing rule, and indeed in some circumstances will not apply at all. Generally speaking, however, parties to arbitration agreements assume that it does. Indeed, surveys suggest that confidentiality is one of the main reasons commercial parties choose arbitration over court proceedings (along with the flexibility of the process and the ability to nominate an arbitrator of choice).

The traditional assumption that arbitrations are confidential is, on the face of it, a fair one, given that arbitration arises through private agreement: it is the contractual agreement to arbitrate (and usually to do so using a pre-agreed set of arbitration rules and with the assistance of an administrating body, such as the International Chamber of Commerce (“ICC”) or the London Court of International Arbitration (“LCIA”)) that provides the necessary legal framework for arbitration. This is inherently different to taking a dispute to a local court, which is a formal dispute resolution process provided and mandated by the state, and therefore, to varying degrees, open to the public and the press.

This traditional assumption was, however, dealt a severe blow in the 1990s, when, with the growth in the use of international arbitration, a closer consideration of various aspects of arbitration began to take place. Those considerations included the extent to which arbitrations were confidential, and when the issue came before the courts in Australia and Sweden in the mid- to late 1990s, the courts in those jurisdictions rejected the concept of an overall duty of confidentiality in arbitration. This led to a debate about confidentiality in arbitration in many jurisdictions, and new legislation in some places. It also led to many of the recognised arbitral institutions amending their rules to clarify the position on confidentiality.

Unfortunately, however, there has been no common approach amongst legislators and arbitral institutions, other than to recognise, and seek to reflect in different ways, the important arbitral mainstay that the parties should have considerable autonomy to decide the rules which will regulate their arbitration. In some instances, therefore, legislators and arbitral administrative bodies moved to make the default position that there was no confidentiality in arbitration (leaving it entirely a matter of the parties’ agreement), whilst others included such a duty, but covering differing scopes. Further, serious questions arose as to the extent to which confidentiality obligations, particularly those imposed through the rules of an arbitral institution as opposed to state legislation, can be enforced.

Whether an arbitration is confidential or not, therefore, depends upon the law at the seat of the arbitration, and the rules (if any) that have been agreed by the parties as part of their agreement to arbitrate. The issue of confidentiality is made complex by the various persons involved in the arbitration process, and the ability of the parties to the arbitration to impose rules upon persons such as witnesses, translators and transcribers who will know of and have access to private and confidential information through their involvement in the arbitration, but who, unlike the parties themselves, are not contractually bound or obliged by the arbitration agreement.

Different Aspects Of Confidentiality

As touched on above, the issue of confidentiality is made complex by the different types of information and documentation that are created and/or become available in the arbitration process.

To give a flavour of the problem, consider the question of documentation generated as part of the arbitral process by the parties and the arbitrators, including the award, as against pre-existing documentation made available as evidence. The former is perhaps in a similar category to the private and closed nature of arbitration hearings, and therefore readily considered confidential, save that in some instances there may be a third party, like a witness of fact, who knows the content of the document and regards it as theirs. Pre-existing documentation that was not created for the purposes of the arbitration might also be thought to be confidential because it might concern or involve parties other than the parties to the arbitration agreement, but equally some or all of it might already be in either the public domain, or certainly a wider domain, having, for example, been issued to various parties on a complex construction project.

Then there is also the question of the many different people involved in the arbitration, and whether a duty should be – or, in the case of arbitration rules rather then state legislation, can be – imposed on them. Who should a duty of confidentiality extend to? Whilst it is probably fair to expect it to extend to the Tribunal, and to the staff of the arbitral administrative body, to do so requires legislation, or agreement, as the people concerned are not parties to the arbitration agreement and therefore have not agreed to the rules that have been agreed to by the parties to the arbitration itself. Further, what about witnesses of fact, who are also not parties to the arbitration agreement, and who might not be entirely willing participants, and may well regard what they hold by way of documents, and the knowledge they have, as being theirs to do with as they wish. Expert witnesses are more obvious candidates for a confidentiality obligation, but it would have to arise through agreement, and the expert may wish, at least to some degree, to be able to let the fact of his or her instruction be known for marketing purposes.

Questions also arise as to whether any confidentiality should attach to arbitral proceedings if they are challenged in the local courts.

Legislation & Arbitration Rules: No Common Approach

As noted above, both countries and the arbitral institutions that administer international arbitration have not taken a consistent approach to “legislating” for confidentiality in arbitration proceedings.

Each country and set of arbitral rules has taken its own approach, and there is not room in this article to cover them all. We look here, therefore, at a handful of countries and institutional rules.

In France, which has been the traditional home of the ICC for many years, with Paris a common arbitral seat, it is only the deliberations of the arbitrators that are said by the relevant provisions of the Civil Code to be confidential, although there is case law which suggests that there may be a limited general duty of confidentiality.

In contrast, in England, where London is another common seat and the home of the LCIA, there is no relevant legislation: the Arbitration Act 1996 is completely silent on confidentiality. But as a consequence of case law, three quite far-reaching rules apply. The first is that unless agreed otherwise, arbitration proceedings are held in private. The second is that there is an implied obligation of confidentiality which arises from the very nature of arbitration, and the third is that any duty of confidentiality is subject to the exceptions of consent, court order, reasonable necessity and public interest.

In Singapore, again a common seat for international arbitration and the home of the Singapore International Arbitration Centre (“SIAC”), it is only court proceedings under the relevant arbitration Acts that might be confidential, if requested by the parties. Like England, however, case law (following English common law) recognises a general obligation of confidentiality, implied into the arbitration agreement.

In several jurisdictions, arbitrators are liable if they disclose arbitration information without consent, including the Dubai International Finance Centre (“DIFIC”), which has rules that require that all information relating to arbitral proceedings be kept confidential, except where disclosure is required by order of the DIFIC Court.

In Hong Kong, another common place and seat for arbitration and the home of the Hong Kong International Arbitration Centre (“HKIAC”), unless otherwise agreed by the parties, a party is not entitled to publish, disclose or communicate any information relating to the arbitral proceedings or any award, unless required to do so by law or to pursue a legal right.

In Sweden (home of the Stockholm Chamber of Commerce (“SCC”)) and the United States, however, there is no legal duty of confidentiality imposed or implied in arbitration.

With regard to the arbitration rules, the position is equally diverse. Whilst many rules make the hearings private, awards confidential, and the duties of the administrating institution private, otherwise they vary significantly. As with countries, there are too many different sets of arbitration rules to cover them all here, but the following is a selection of the better known ones.

The UNCITRAL Rules do not extend beyond making the hearings private, and the award confidential:

  • “Article 38(3) – Hearings shall be held in camera unless the parties agree otherwise. …”

and

  • “Article 34(5) – An award may be made public with the consent of all parties or where and to the extent disclosure is required of the party by legal duty, to protect or pursue a legal right or in relation to legal proceedings before a court or other competent authority.”
  • The SCC rules are also limited, simply obliging the arbitrators and the SCC to maintain the confidentiality of the award.

The ICC Rules make the hearings private, and the workings of the ICC Court confidential, but otherwise they simply provide for arbitrators to make orders in relation to confidentiality on the application of one of the parties. This followed considerable debate and deliberation in advance of the new rules which came into force in 2011.

The relevant Article reads as follows:

  • “Article 22(3) – Upon the request of any party, the Arbitral Tribunal may 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.”

In contrast, the LCIA Rules include a specific agreement that the award, disclosed materials and the deliberations of the Tribunal are confidential, as follows:

  • “Article 30 – Confidentiality
  • 30.1 Unless the parties expressly agree in writing to the contrary, the parties undertake as 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 – save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority.
  • 30.2 The deliberations of the Arbitral Tribunal are likewise confidential to its members, save and to the extent that disclosure of an arbitrator’s refusal to participate in the arbitration is required of the other members of the Arbitral Tribunal under Articles 10, 12 and 26.
  • 30.3 The LCIA Court does not publish any award or any part of an award without the prior written consent of all parties and the Arbitral Tribunal.”

Both the HKIAC and SIAC Rules go much further, making the process essentially confidential. Likewise the Dubai International Arbitration Centre Rules provide for confidentiality, as follows:

  • “Article (41) – Confidentiality
  • 41.1 Unless all parties expressly agree in writing to the contrary, the parties undertake as a general principle to keep confidential all awards and orders 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 – save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority.
  • 41.2 The deliberations of the Tribunal are likewise confidential to its members, except where an explanation of an arbitrator’s refusal to participate in the arbitration is required of the other members of the Tribunal under Articles 13, 14 and 15 of the Rules.”

When embarking upon arbitration, therefore, you can assume that it is private – that is to say, that third parties will not be allowed to participate without your agreement; but whether, and if so to what extent, the process might be confidential, depends upon the seat of your arbitration, and which rules, if any, you have agreed will apply.

Valuable Information Everyone Should Know About FINRA Arbitrations

The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organisation that regulates member brokerage firms and exchange markets.

Investing in a company or a financial portfolio can sometimes provide fruitful returns, however, losses do regularly occur and occasionally they are a result of broker negligence or investment fraud. In such cases, a claim can be made to the FINRA and, for holder’s of a brokerage account, it is mandatory to take your claim to FINRA for arbitration.

The reason behind this is that brokerage companies registered with FINRA have binding agreements with their customers which makes taking a claim to arbitration an obligation under the law.

FINRA arbitration rules aim to provide claimants and defendants with the opportunity to resolve cases out of court, this has several benefits for both parties including a faster process, lower legal fees, a choice of arbitrators and no right of appeal except in rare circumstances.

If you are considering submitting a FINRA arbitration claim or wondering what your legal standing is in the event of brokerage fraud, there are various valuable pieces of advice and need-to-know information that will increase the chances of your claim being settled in your favour, which you can read more about below.

Hire an Experienced Attorney

The first step in filing a FINRA arbitration claim is hiring the right lawyer to represent you. According to advice from the professional investment fraud lawyers at Madia Law, the attorney you choose should be aggressive, experienced and fully focused on winning your case. This is vital to your chances of success as the majority of brokerage firm’s are subject to mandatory FINRA arbitration so in many cases they will employ an equally astute securities lawyer to defend them.

What Does FINRA Do?

Formed in 2007 after receiving approval from the U.S Securities and Exchange Commission (SEC), FINRA is a non-profit organisation authorised by the government to create and enforce rules and inspect brokerage firms for compliance. The actions of FINRA can be seen in its records from 2020 as it handed out 808 disciplinary actions, collected $57 million in fines and commanded $25.2 million in compensation payments to defrauded investors. In addition, the organisation referred over 970 investment fraud and insider trading cases to the SEC.

It is Similar to a Court Hearing

The process of FINRA arbitration is often simpler and quicker than a court case, however, the legal processes and procedures do share some similarities. For instance, during the final hearing, both parties have the opportunity to present and support their legal arguments using documents and witness testimonies. Rather than a judge presiding over an arbitration case, it is the task of a single arbitrator or a panel of three to impartially examine the evidence and decide a ruling. Furthermore, FINRA arbitrators are allowed more flexibility when interpreting legal issues compared to judges.

The Process is Different for Larger Claims

The monetary size of your claim is a determining factor in the arbitration process as cases that involve larger compensation claims over $50,000 must include an in-person hearing in front of a panel of three arbitrators, one of which occupies the position of chair. On the other hand, claims considered to be small are heard by a sole arbitrator and the parties can choose to process the case in person, over the phone or by paper communication and documentation. To ensure smaller claims are heard promptly, FINRA may opt to submit a claim to go through a Simplified Arbitration Process.

Arbitration is Faster Than Court Proceedings

Arbitration cases are known to be settled quickly compared to those that go to court and are typically completed within 12-16 months. The major reason for this faster turnaround is the simplified process of discovery when both parties exchange documents and identify witnesses.

Submit Your Claim On Time

FINRA arbitrations differ from court actions as they are subject to eligibility regulations set by the FINRA forum that requires all claims to be submitted within six years of the event which caused the dispute. However, these regulations can vary state to state with some time frames for eligibility being much shorter, therefore if you are experiencing a dispute with a broker you should submit your claim sooner rather than later.

How to File a Claim

The rules governing investment fraud and broker misconduct that can be found in the FINRA Code of Arbitration state that the first step in arbitration is filing a Statement of Claim. This document will provide a detailed description of the dispute, the names of the parties involved and the amount of compensation claimed.  A strong Statement of Claim presents the facts and legal principles relating to a case.

In addition to a Statement of Claim, claimants must also complete a Submission Agreement stating that they understand and agree to adhere to FINRA’s procedures and regulations. Most importantly it also establishes an agreement between both parties that if the case ends with a hearing then the ruling by the arbitrator is final, although occasionally cases can be appealed at the SEC. Usually, these initial documents can be filed electronically on FINRA’s portal enabling them to quickly deliver the claim to the accused brokerage firm.

Your Case Will Be Assigned To A Regional Office

After FINRA has received, filed and served a Statement of Claim, they will select a regional office and arbitrator lists close to where both parties reside, who will be assigned the case. Oftentimes, the location of a hearing is the place the claimant lived when the event causing a dispute occurred, however, it can be altered in certain circumstances or if both parties are in agreement. Generally, there is a minimum of one FINRA hearing location in each state.

How Arbitrators Are Chosen

Upon receiving a Statement of Claim, a brokerage firm has 45 days to do their research on a claim, prepare any defence and serve their response. Next, FINRA will create a list of possible arbitrators for the case and send identical copies to each party, included in the document is detailed information about each arbitrator’s background such as their education, employment history, and training. Furthermore, the report lists the cases where an arbitrator issued the final ruling.

During the arbitrator selection process, either side can remove arbitrators from the shortlist and rank the remaining candidates. The list also categorises the potential arbitrators into two categories; non-public and public. Non-public arbitrators have connections with the securities sector whilst public arbitrators do not. This is important because in cases with larger claims, the plaintiff has the right to strike all non-public arbitrators.

Investing can often lead to good rewards when your money is managed carefully and professionally, however on occasion losses can be incurred due to investment, brokerage fraud or misconduct. Therefore, if you believe you are a victim of investment fraud or think you are at risk of it, then it is well worth reading advice on the legal process involved so you know what to expect.

Latham Secures Major Victory for Ukraine in USD 6 Billion Arbitration

Latham & Watkins has secured a significant victory defending Ukraine in a landmark arbitration brought by three Cypriot companies – Littop Enterprises, Bridgemont Ventures, and Bordo Management – before the Stockholm Chamber of Commerce in connection with the Energy Charter Treaty.

The companies are minority shareholders in Ukrnafta, Ukraine’s largest producer of oil and associated gas, alongside the main shareholder, Naftogaz, a Ukrainian State-owned company. Despite holding only a minority stake, the Cypriot companies exercised operational control over Ukrnafta until 2015, when Ukraine adopted legislation that limited the ability of minority shareholders to exercise control of companies in Ukraine.

The Cypriot companies subsequently brought an ECT claim for payment of damages in excess of US$6 billion, believed to be the largest ever treaty claim brought against Ukraine.

They claimed that the changes in Ukraine’s corporate governance legislation was unlawful, and alleged that Natftogaz and Ukraine’s energy regulator sought to fix the price at which Ukrnafta sells gas to Naftogaz at a level below Ukrnafta’s cost of production and had prevented Ukrnafta from selling its natural gas on the open market.

On February 4, 2021 the SCC Tribunal unanimously dismissed the case for lack of jurisdiction and in doing so handed Ukraine the largest investment arbitration win in the country’s history.

The Latham & Watkins team was led by Hamburg partner Sebastian Seelmann-Eggebert and London partner Charles Claypoole, with London associates Tom Lane and Olivia Featherstone.

An Enhanced Platform for International Arbitration Law

International arbitration is the preferred method of resolving cross-border disputes. The neutrality it offers, together with the relative ease of enforceability of awards, can make it a more attractive forum for disputes than litigating in contracting parties’ national courts.

Eversheds has further strengthened its Litigation and Dispute Resolution practice with the appointment of Wesley Pang as Partner in the Arbitration team.

Wesley has broad experience in advising global corporate clients on major, cross-border disputes. He also acts for clients on investor-State cases, on both contentious and non-contentious issues.

He joins the Eversheds practice from the Hong Kong International Arbitration Centre where he was Managing Counsel . Wesley’s arrival comes at an important time; arbitration is the preferred dispute resolution mechanism for clients in the energy and projects sectors and Asia’s share of these markets continues to grow, and increased activity is accompanied by demand for experienced disputes lawyers.

The arbitration market in Hong Kong is growing, and more generally across Asia. This sector-driven demand emanates in part by Chinese state owned enterprises and other Chinese organisations. Disputes in the energy and construction sectors are also increasing, in part as a result of China’s ‘Belt and Road’ initiative. Wesley is well-placed to advise these and other Asia-based and multinational organisations that are active in the region and globally.

Eversheds Sutherland Overview

Eversheds Sutherland is a global multinational law practice created by a combination of law firms Eversheds LLP and Sutherland Asbill & Brennan LLP, in February 2017, and is one of the 50 largest law practices in the world.