Confidentiality in Arbitration – The German perspective

This is the first article in Clyde & Co’s latest international arbitration series covering the topic of confidentiality in international arbitration. In this piece, senior associate Dr Styliani Ampatzi and legal assistant Clara Burgmans from our Dusseldorf office provide the legal perspective from Germany.

Confidentiality within arbitration can either mean the non-public nature of the proceedings and the subsequent exclusion of persons not necessarily required for the conduct of the proceedings (Privacy) or the obligation of all participants to maintain confidentiality about the content of the proceedings, documents, actions, or information obtained through the presentation of evidence (Confidentiality).^_[1]

Privacy

In Germany, arbitration proceedings are regulated by the 10th book of the German Code of Civil Procedure (CCP). In accordance with the principle of private autonomy, parties are free to choose the form and procedure of the proceedings pursuant to Section 1042 para 3 CCP. An agreement can be explicit or implied. If no such agreement is in place, Section 1042 para 4 CCP grants the arbitral tribunal the power to decide about the form of the proceedings and to further regulate any details. In principle, the parties or (subsidiarily) the arbitral tribunal can therefore determine the privacy, or otherwise, of the proceedings. If the parties have reached no agreement on the privacy of the proceedings and are consequently dependent on the arbitrator’s decision in the individual case, there is potential uncertainty. In view of the importance of privacy in arbitral proceedings, this uncertainty about an essential feature of the proceedings should be avoided. It should be noted, in this context, that Section 1042 ZPO, which is based on private autonomy, cannot lead to the disadvantage of the parties and an implied agreement of the parties on the privacy of the proceedings is accordingly assumed if no contrary will of the parties is recognisable. ^[2]

The persons that can attend the arbitration proceedings are determined based on various considerations and principles, also accounting for the principle of privacy. The parties and their legal representatives cannot be excluded from the proceedings since this would violate fundamental rights of the parties. However, other persons, such as arbitrators, witnesses and experts, are only admitted to the proceedings if their presence is deemed necessary for the proper conduct of the proceedings.

Principle of Confidentiality

In addition to the private nature of the arbitral proceedings themselves, the parties may also be interested in keeping certain internal aspects of the proceedings, such as confidential information, witness statements or even any awards, away from the public eye. The confidentiality might apply to the parties, the arbitrators, and / or other third parties and will have a have different legal basis accordingly.

Duty of confidentiality of the parties

To maintain the confidentiality of the arbitral proceedings, the participating parties should not disclose any internal details of the proceedings to the public. This can be reliably achieved if all participants are under a binding obligation of confidentiality, which can be established in various ways.

•    Confidentiality on the basis of party autonomy
Section 1042 para 3 CCP gives the parties the fundamental freedom to determine the form of the proceedings, including confidentiality of the arbitral proceedings, in accordance with the principle of party autonomy. Thus, it is up to the parties to commit themselves to confidentiality, either in the arbitration agreement or in another agreement related to the arbitral proceedings. The agreement of the parties might be express or implied. ^_[3]

 The confidentiality agreement may be explicitly included in the arbitration agreement (or the parties may also include a confidentiality agreement in the arbitration agreement by reference. A typical example is the express reference to certain arbitration rules that provide for a duty of confidentiality of the parties. Article 44 of the Arbitration Rules of the German Institute of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit, DIS) provide:

44.1 Unless the parties agree otherwise, the parties and their outside counsel, the arbitrators, the DIS employees, and any other persons associated with the DIS who are involved in the arbitration shall not disclose to anyone any information concerning the arbitration, including in particular the existence of the arbitration, the names of the parties, the nature of the claims, the names of any witnesses or experts, any procedural orders or awards, and any evidence that is not publicly available.
44.2 Disclosures may nonetheless be made to the extent required by applicable law, by other legal duties, or for purposes of the recognition and enforcement or annulment of an arbitral award.
44.3 The DIS may publish statistical data or other general information concerning arbitral proceedings, provided that no party is identified by name and that no particular arbitration is identifiable on the basis of such information. The DIS may publish an arbitral award only with the prior written consent of all of the parties

The DIS Arbitration Rules introduce a duty of confidentiality upon the parties, the arbitrators, and the DIS Secretariat employees involved in the administration of the arbitration proceedings. Hence, by agreeing on the application of the DIS Arbitration Rules, the parties expressly agree that they are bound by confidentiality regarding the arbitration proceedings. 

The issue is more complicated if there is no explicit agreement or reference to specific arbitration rules in place. While an implied agreement is, possible in principle, caution needs to be applied when making the respective determination to ensure that the parties’ true will is respected. German case law has not yet addressed the question of whether a general obligation of the parties to confidentiality already exists due to an implied agreement already contained in the arbitration agreement.  However, the prevailing opinion in the German legal literature rejects that position._^[4]  According to the respective opinion, a party to arbitration inevitably obtains information about the other party that cannot be mentally erased after the proceedings. In a subsequent legal dispute against the same opposing party, this party would therefore adjust its actions in consideration of the knowledge gained during the arbitration proceedings and then could hardly be argued that this party breached its duty of confidentiality established by implied agreement._^[5]

•    Confidentiality on the basis of the law
Unlike some other foreign laws, the German legal system does not impose a general duty of confidentiality. In particular, the 10th Book of CCP does not impose a general obligation on the parties to maintain confidentiality. A respective duty might, however, arise from special laws applicable to the individual case, e.g., laws for the protection of trade, business, or tax secrets._^[6]

•    Confidentiality as a secondary contractual obligation
Secondary obligations arising from a contract, supplement the main obligation, and have a supporting effect aimed at further securing the legal positions of the contractual partners. The duty of confidentiality can be qualified as a secondary contractual obligation only if this is justified in an individual case and corresponds to the will of the parties. In principle, confidentiality in arbitration is justified due to the common objective of the parties to achieve the resolution of their dispute. To that end, the parties had a duty of loyalty and a duty to advance the proceedings, which would be put at risk and could not be fulfilled if the party disclosed sensitive information.^_[7]  As far as the will of the parties is concerned, which must also exist in order to assume a secondary contractual obligation of confidentiality, the German legal literature sets a rather low threshold for the respective determination. In particular, the parties’ choice of arbitration could on its own be enough to conclude that the parties desired a duty of confidentiality.^_[8]

Duty of confidentiality of the arbitrators

The duty of confidentiality might also apply to the arbitrators, who must maintain the secrecy of deliberation to ensure an independent judgement free from external influence, and are further also burdened with the general duty of confidentiality preventing them from disclosing information obtained from the parties in the course of the arbitral proceedings to third parties.
The secrecy of deliberation secures the independence of the arbitrators by protecting their decision-making freedom. According to the prevailing opinion, its legal basis is Section 43 of the German Judiciary Act (Deutsches Richtergesetz, DRiG) which applies by analogy since a respective obligation of the arbitrators is not regulated in the law, which in turn creates a legal gap. Pursuant to Section 43 DRiG,

“Judges are to preserve secrecy regarding the course of deliberations and voting even after their service has ended.”
The same obligation thus binds the arbitrators._^[9]

The further duty of the arbitrators to maintain confidentiality about any information acquired in the course of the arbitration proceedings is to be understood as a secondary obligation from the arbitrator's contract with the parties. The parties of that contract are generally obliged to show mutual consideration for the interests of the other side. Hence, the arbitrator has, in principle, the duty to protect the rights and legal interests of the parties to the arbitration by keeping confidential any information that was made known to him in the proceedings. Certain exceptions may apply when the arbitrator has to disclose internal information about the award to protect the arbitrator’s own rights. In such cases, the arbitrator could also seek a waiver from the duty of confidentiality in agreement with the parties. 

Duty of confidentiality of other third parties _^[10]

Other third parties such as witnesses or experts might also be affected by the duty of confidentiality. The German law does not explicitly provide for an obligation upon such third parties. A contract between the parties, whether or not that includes the arbitrators cannot on its own bind third parties. For that reason, in order to ensure the confidentiality of third parties, a specific agreement between the parties of the arbitration and the third parties is necessary.^_[11]

Scope of confidentiality

Once established, the scope of confidentiality must be interpreted widely. Confidentiality generally covers, in particular, the existence of the arbitration itself, the arbitral awards, the documents and evidence produced as well as witness statements, the statements, and position papers exchanged between the parties. To some extent, this is also ensured by the privacy of the arbitration proceedings. Confidentiality shall also be applied to company, business, and trade secrets. That said, certain exceptions might apply. As far as the awards are concerned, the confidentiality is lifted once the courts have to deal with an award in the course of setting aside proceedings.^_[12]  In any case, the confidentiality is usually subject to the (private and/or public) interests concerned that need to be weighed in order for it to be decided whether in each individual case, confidentiality is to be applied and how.^_[13]

Legal consequences in case of violation

In case that a party violates its confidentiality obligations, a number of consequences might apply. It is, for example, possible that the other party may be entitled to damages and/or interim relief. In more extreme cases, the other party might even be able to terminate the arbitration agreement.^_[14]

Conclusion

The principle of confidentiality appears to be one of the most important advantages of arbitration. As long as an obligation of the participants in arbitration proceedings to treat all information acquired in the course of the proceedings as confidential is established, the parties have the additional reassurance that important business or trade secrets or sensitive information of any other kind will not exceed the limits of the proceedings and will not become public knowledge. That said, since the German law does not impose confidentiality in arbitration, it is possible that uncertainty arises if the parties have not reached an explicit agreement in this regard. Hence, it is highly recommended that, if the parties wish to achieve certainty regarding confidentiality in their arbitration proceedings, they need to ensure that appropriate agreements are concluded. This can either be done by introducing specific provisions on this point or by referencing Arbitration Rules that are to apply and which already regulate confidentiality in the arbitration proceedings, such as the DIS Arbitration Rules.

This series will continue next week with the position from Spain.

[1] Oldenstam, Confidentiality and Arbitration - a few reflections and practical notes, SchiedsVZ 2006, 31, 32; Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 24; Haas, Vertraulichkeit im Zusammenhang mit Schiedsverfahren, in Recht ohne Grenzen: Festschrift fur Athanassios Kaissis, pp. 315.

[2] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 25.

[3] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p.22,  26

[4] Voit in Musielak/Voit, ZPO, 19th Edition 2022, § 1029 marginal no. 27; Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 30; Haas, Vertraulichkeit im Zusammenhang mit Schiedsverfahren, in Recht ohne Grenzen: Festschrift fur Athanassios Kaissis, pp. 315, 317.

[5] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 31.

[6] Haas, Vertraulichkeit im Zusammenhang mit Schiedsverfahren, in Recht ohne Grenzen: Festschrift fur Athanassios Kaissis, pp. 315 et seq.

[7] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 33 et seq.; defferent view Haas, Vertraulichkeit im Zusammenhang mit Schiedsverfahren, in Recht ohne Grenzen: Festschrift fur Athanassios Kaissis, pp. 315, 318.

[8] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 33 et seq.

[9] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 38 et seq.

[10] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 39 et seq.

[11] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 40.

[12] Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 41; Oldenstam, Confidentiality and Arbitration - a few reflections and practical notes, SchiedsVZ 2006, 31, 34.

[13] Oldenstam, Confidentiality and Arbitration - a few reflections and practical notes, SchiedsVZ 2006, 31, 34; Platz, Der Grundsatz der Vertraulichkeit des Schiedsverfahrens – Grundlagen und Grenzen, StudZR-WissOn 2014, p. 22, 40 et seq.

[14] Haas, Vertraulichkeit im Zusammenhang mit Schiedsverfahren, in Recht ohne Grenzen: Festschrift fur Athanassios Kaissis, pp. 315, 325; Oldenstam, Confidentiality and Arbitration - a few reflections and practical notes, SchiedsVZ 2006, 31, 33.