29.03.2011

Confidentiality in Arbitration under Kazakhstan Law

Confidentiality is one of the main advantages of arbitration recognized in Kazakhstan and other jurisdictions. In practice, however, a number of problems related to confidentiality remain unresolved. The controversial issues include disclosure of information related to cases of particular importance to the society at large, observance of confidentiality at the stage of enforcement of arbitral awards and liability for failure to observe confidentiality.

Confidentiality is one of the main advantages of arbitration recognized in Kazakhstan and other jurisdictions. In practice, however, a number of problems related to confidentiality remain unresolved. The controversial issues include disclosure of information related to cases of particular importance to the society at large, observance of confidentiality at the stage of enforcement of arbitral awards and liability for failure to observe confidentiality.

According to Article 4 of the Law of the Republic of Kazakhstan ‘On Domestic Arbitration Courts’ (the Law On DAC) and Law of the Republic of Kazakhstan ‘On International Commercial Arbitration’ (the Law On ICA) arbitration proceedings shall be held with full respect of confidentiality. It means that arbitrators shall not have a right to disclose information revealed during the proceedings, without the consent of the parties or their legal successors, and cannot be interrogated as witnesses on information they knew about during the arbitration hearings. Both laws specifically state that the interference of state bodies to the activity of arbitration shall not be allowed.

For example, in dispute reviewed in Stockholm between Naftogaz Ukraine and RosUkrEnergo there were disclosed the details of amicable settlement agreement, where there was dispute about 11bln m of gas, the volume that is more than 20% of annual needs of Ukraine and more than 53% of annual gas extraction in the country. Even though the details of the dispute have been disclosed, the subject of this dispute concerned the interests of the whole country that is able to influence on the condition of the country’s economy. Can we talk about observance of confidentiality in this case? This is the case when information is publicly important, and the right of the society to know this information prevails above the right of its owner for its protection. In this case the necessity to make information publicly available was covered by Article 30 of the Law of Ukraine On Information.

The issue of confidentiality has a particular significance at the stage of enforcement of arbitration awards. Article 31 of the Law On ICA determines the grounds for cancellation of the arbitral award. For example, the arbitral award can be cancelled by the competent court in case, if the party requesting for cancellation provides the evidence that the arbitral tribunal or arbitration procedure were not in compliance to the arbitration agreement or arbitration rules. That is why the question is – can we consider that the observance of confidentiality is the component part of the arbitration rules, and its non-compliance certifies on noncompliance to the agreed arbitration agreement and rules? Thus why the violation of the confidentiality principle by arbitrator cannot influence to the outcome of the arbitral award and make it cancelled? This is still the question for discussion.

Another important question that is still undecided – the issue of liability for nonobservance of confidentiality. Article 497-03 of the Code of Kazakhstan On Administrative Violations determines the responsibility for use of informational resources containing confidential information on physical persons and legal entities with purpose to bring material and moral damage, limitation of rights and freedoms, guaranteed by the laws of the Republic of Kazakhstan in the form of penalty up to USD 1,750 on legal entities.

However, how applicable is this to arbitration? Legislation of Kazakhstan does not foresee other provisions where there would be mentioned the liability of persons who violated the principle of confidentiality of arbitration. There are no such provisions in most of rules of existing arbitration courts. Regardless the absence of specific provisions on liability for violation of confidentiality principle, it is obvious that the responsibility will be in the form of loss of the authority and reputation of arbitration court and arbitrators who reviewed the dispute.

Article 7 of the Rules of Kazakhstani International Arbitration states on the obligation not to disclose the information on disputes resolved by KMA without the consent of the parties – but only in regards to Chairman, Deputy Chairman, Arbitrators and employees of secretariat of KMA. Similar provision is in Article 46 of Arbitration Rules of Arbitration Institute under Chamber of Trade of Stockholm, where for the participants of arbitration procedure – claimant and defendant – there are no restrictions in distribution of information. Unfortunately, it allows interested party to inform third parties on possible important details of arbitration case, if necessary.

Unfortunately, not in all arbitration courts the obligation on non-publication of arbitral awards or exclusion of the names of the parties participating in arbitration, possibility of publication of only summary are determined.
In the UK, for example, the confidentiality principle also means that arbitrators cannot be interrogated by prosecution bodies and court in regards to information known from the arbitration case, therefore having the witness immunity of arbitrator. In Kazakhstan the witness immunity of arbitrator shall cover all types of court proceedings, though even it is not clearly stated in our legislation. Witness immunity of arbitrators shall be as significant as rules determining the prohibition to interrogate the relatives on actions of their family, and obtain the relevant information from ministers of church/mosque, for example, who found out about information during confession, from advocates, notaries.

The question arises how to respect confidentiality at the stage of enforcement of arbitral award carried out by domestic courts? The issue is that the dispute reviewed in arbitration after being taken into consideration for enforcement by state court of Kazakhstan becomes publicly available. Therefore, the observance of confidentiality principle is difficult to implement in practice due to the number of parties participating in enforcement process, i.e. judges, bailiffs, banks, tax bodies and others. Kazakh legislation determines the procedure for appeal and forced enforcement of the arbitral award in state courts shall be developed. In some countries, the procedural legislation allows to obtain the special court’s decision that will prohibit the access of third parties to such award. In this regards it would be reasonable to introduce to Kazakh legislation a provision determining the obligation of competent state bodies to review the cases on appeal or enforcement of arbitral awards in closedness, if parties did not decide otherwise.

We shall bear in mind that one of the main reasons for going to arbitration is the willingness to keep the dispute in secret, especially apart from the broad public views to preserve the commercial secret, necessary to keep the business reputation of the business and company. But what if one of the parties violated the confidentiality principle of arbitration having disclosed the information to the public?

It is obvious that the protective mechanism for other party would be its right to demand for compensation of losses caused by the violation of confidentiality principle. Due to absence of specific provisions determining the liability for violation of confidentiality, it is recommended to draft a separate agreement on confidentiality of information obtained during arbitration procedure, where there will be specifically determined the duties and responsibilities for violation of confidentiality of each party, thus assuring the clear action plan in case of information disclosure.

CIS Arbitration Forum