Can users of international commercial arbitration safely assume the process is confidential?  Do international arbitrators possess ‘inherent powers’ beyond what is specified in the arbitral rules?  These are two topics recently examined by the International Law Association’s (ILA) International Commercial Arbitration Committee (Committee).

As noted in the Editors’ welcome entry, one aim of the ILA Reporter is to provide updates on the work and progress of the ILA’s international committees.

The International Commercial Arbitration Committee

International arbitration has been a subject of interest for the ILA since as early as 1895.  The current International Commercial Arbitration Committee is composed of 53 members from over 30 countries, including professors, judges, arbitrators, private practitioners and staff of international organisations.

The Committee meets in different locations around the world, approximately three times a year. The Australian Branch has two members — Hague-based Judith Levine and Sydney-based Damian Sturzaker and an alternate, Jason Clapham.  Having members in both hemispheres helps ensure that an Australian representative is present at each meeting.  There are other ways for ILA Australia branch members to participate in the Committee’s work. For example, for the recent project on confidentiality, young lawyers from the ILA Victoria Chapter helped compile information and draft a submission on Australian case law and legislation, which was used for the Committee’s final report.

The cumulated reports of the Committee form a valuable body of work and contain recommendations based on experience in national jurisdictions and international practice.  Blog readers are encouraged to look back at reports of the past decade, including on ‘Public Policy as a Bar to Enforcement of International Arbitral Awards‘ (New Delhi Conference, 2002); ‘Res Judicata and International Arbitration‘ (Berlin Conference, 2004); and ‘Lis Pidens and Arbitration‘ (Toronto Conference, 2006).  This post will focus on the two most recent topics examined by the Committee: ‘Confidentiality in International Commercial Arbitration‘ (The Hague Conference, 2010); and ‘Inherent and Implied Powers of Arbitral Tribunals‘ (Washington DC Conference, 2014).

Recent Committee Work: Confidentiality

The Committee’s last report surveys current law and practice to test the assumption commonly held by parties that their international arbitration proceedings are confidential.  The report identifies problems that may arise as a result of inconsistent confidentiality rules, sets out findings and offers recommendations, including two model clauses.  The Committee decided to limit the scope of its report to international commercial arbitration, consciously excluding discussion of confidentiality as it relates to investor-State arbitration.  The investor-State context was seen as giving rise to distinct policy concerns that may warrant different approaches and solutions that have since been the subject of a separate set of rules on transparency promulgated by UNCITRAL.

The Committee found that confidentiality is an important feature of international commercial arbitration but that many users incorrectly assume that arbitral proceedings are inherently confidential. In fact, many national laws and arbitral rules do not currently provide for confidentiality and those that do vary in their approach and scope. The report notes that arbitration confidentiality obligations bind the parties to the dispute and their agents and representatives, as well as arbitrators, arbitral institutions and tribunal secretaries, but not others involved in a case (like witnesses). Where a tribunal has jurisdiction over an arbitral confidentiality dispute, it may use a range of remedial powers, such as ordering injunctive or declaratory relief, awarding damages, barring the introduction of evidence procured in breach of confidentiality, or treating the breach as a breach of the underlying contract.

The Committee recommended that:

  1. The best way safely to ensure confidentiality (or non-confidentiality) across many jurisdictions is to provide for it by express agreement (prior to or during the arbitration);
  2. In the absence of contractual provisions on confidentiality, arbitrators should consider drawing the attention of the parties to confidentiality and, if appropriate, addressing the issue in terms of reference or a procedural order at the outset of proceedings;
  3. Express agreement to confidentiality should specify the scope, extent, duration of the confidentiality obligation, the exceptions to it, and how it may be enforced;
  4. Given that confidentiality provisions do not normally impose obligations on third parties involved in the arbitral process(like witnesses), it should be incumbent upon the participant in the arbitration who brings the third party into the proceedings to make reasonable efforts to obtain their express agreement to preserve confidentiality; and
  5. Reasonable exceptions to an obligation of confidentiality may include:
    • prosecuting or defending the arbitration or proceedings related to it (e.g. for enforcement/annulment);
    • responding to a compulsory order or request for information of a governmental or regulatory body;
    • making a disclosure required by law or by the rules of a securities exchange; or
    • seeking legal, accounting or other professional services, or satisfying information requests of potential acquirers, investors or lenders.

The topic currently under consideration by the Committee is ‘Implied and Inherent Powers of Arbitral Tribunals’.  Unlike the confidentiality project, this topic was not limited to commercial arbitration and, in fact, many of the examples in the report were drawn from investment treaty disputes.  As with the confidentiality project, Australian members actively participated in discussions and contributed research papers and sources that are referenced in the report.

The report introduces the topic by noting that party agreement is the foundation of every arbitration, and poses the following questions:

[A]rbitrators are sometimes confronted with situations that are not addressed by either the parties’ arbitration agreement or the applicable curial law and rules.  What, if any, powers do the arbitrators have to deal with those situations?  What is the source of those powers?  What is the limit of them?

The report reviews the common law origins of inherent and implied powers and discusses various situations where such powers may be relevant to international commercial arbitration, including:

  • Powers relating to procedure (e.g. determining the seat, bifurcating proceedings, deciding on evidentiary matters, permitting non-party participation);
  • Powers to issue interim relief (e.g. to seek a stay of court proceedings, to stop criminal proceedings, to stop disclosure of documents, and to take steps to prevent the exacerbation of the dispute or to maintain the integrity of the arbitral proceedings);
  • Powers related to decision-making (e.g. to deal with new objections to jurisdiction, to order summary dismissal, to award interest);
  • Powers to safeguard against misconduct and perceived improprieties (e.g. to deal with vexatious claims or bad faith conduct, to allocate costs as a sanction, to disqualify counsel); and
  • Powers of revision (e.g. to modify a decision in light of new evidence).

The Committee conceptually divides the sources of power into three categories:

  • powers implied by textual sources (the parties’ agreement, applicable rules and law governing the arbitration);
  • discretionary powers of procedure (stemming from the right to oversee proceedings); and
  • inherent powers necessary to preserve jurisdiction (stemming from the duty of arbitrators to protect the integrity of proceedings and render an enforceable award).

While implied and discretionary powers remain subordinate to party agreement, inherent powers cannot be so restricted, and therefore, according to the Committee, ‘should be used narrowly, proportionately and only so far as necessary to accomplish the exigencies of the particular situation’.

The Committee’s recommendations are targeted at:

  • Parties — who should understand that tribunals have inherent and implied powers and realise that, within limits, they may by agreement confirm, expand or constrict arbitral powers;
  • Arbitrators — who should always first look to the arbitration agreement, rules governing proceedings and relevant law to assess the scope of their authority in any given situation. Only if those sources do not adequately resolve the issue, should they consider whether to act on the basis of implied, discretionary, or inherent authority (in that order). Before exercising such powers, arbitrators should elicit the parties’ views and assistance to fashion the most appropriate solution, taking into account their legal background and the law governing the arbitration. Arbitrators should explain their reasoning for exercising implied, discretionary or inherent powers, which may help the award to withstand review at enforcement or actions to set aside proceedings; and
  • Courts — which should appreciate that arbitrators often have some power to act beyond the explicit boundaries set by the laws and rules governing an arbitration.

Future Committee Work?

As noted on the ILA website, the Inherent Powers report will be tabled for finalisation at the 2016 conference in Johannesburg.  Future topics for the committee are being considered and suggestions are welcome to be sent to: jlevine@pca-cpa.org.

Judith Levine is Senior Legal Counsel at the Permanent Court of Arbitration in The Hague (PCA), where her duties include serving as Registrar in the Philippines v China UNCLOS arbitration. She is a member of the Board of Directors of the Australian Centre for International Commercial Arbitration (ACICA). Neither the views expressed in this blog entry nor the ILA Committee Reports are attributable to the PCA or ACICA.