Is arbitration truly confidential?
When the state court resolves issues related to arbitration proceedings, the hearing should not be public.
For businesses, a crucial advantage of arbitration is its privacy. But is it really possible to assure the confidentiality of arbitration to a degree that is satisfactory to the litigants?
Confidentiality is observed in proceedings before arbitration panels in Poland and abroad. Non-parties may attend sessions only upon consent of the parties and the arbitrators, the press is not admitted, and rulings may be published only if the parties do not object. Doubts surrounding confidentiality may arise only with respect to witnesses, experts and translators, but those persons may be bound contractually not to disclose any facts they learn in connection with the dispute.
Closed yet open
But if it is necessary to seek any relief from the state court—and such situations are increasing along with the growing popularity of arbitration—the general rule in the state courts applies—that is, that proceedings are open.
Generally, submitting a dispute to arbitration precludes proceedings before the state courts. Nonetheless, under Part Five of Poland’s Civil Procedure Code, in many instances the state court will take actions relevant to arbitration proceedings. Such actions may be taken in the pre-arbitration phase (interim relief to secure claims or evidence), during the course of the arbitration proceedings (taking evidence or carrying out other measures which the arbitration court cannot perform itself), or in post-arbitration proceedings (consideration of a petition to set aside the award or an application for recognition or enforcement of the award).
Some measures by the state courts are procedural in nature (appointment or removal of an arbitrator), while other affect the merits of the dispute (ruling on a challenge to jurisdiction of the arbitration court or a petition to set aside the award).
Open hearings are the rule in proceedings before the state courts. The only relevant exception is for a proceeding for appointment or removal of an arbitrator, where the court may hold a closed session in which it hears the parties or takes written statements from them. However, Civil Procedure Code Art. 1159 does not exclude the court from ordering that the case be heard in open session. The court also decides in closed session on interim relief and on recognition or enforcement of a domestic arbitration award or settlement concluded before the arbitration court. In other arbitration-related matters, the state court hears the case in open session.
Open session is generally used for making factual findings and taking evidence, particularly in the form of witness testimony. However, if the state court must determine whether the arbitration court has jurisdiction, it usually does not need to make additional factual findings or admit testimony from witnesses. The role of the state court then boils down to considering the reasoning adopted by the arbitration court in upholding its own jurisdiction and an analysis of the positions of the parties, but these can be presented thoroughly in writing because in open court the parties generally just repeat the argumentation presented in their written pleadings.
Written submissions should suffice
Under the current state of the law, if the state court rules on a challenge to the jurisdiction of the arbitration court without holding a hearing, the proceeding may be deemed to be void because the parties were not afforded the opportunity to defend their rights.
It is accepted in the case law that a party is denied its right to a defence if due to actions by the court or the opponent the party could not take part in the proceeding as a whole or a significant portion of the proceeding. But this has to do with being completely deprived of a factual ability to present a defence. There is nothing preventing the court from ordering the parties to present their final positions in writing and then deciding the case after receiving their written statements.
In my view, ruling on a challenge to the jurisdiction of the arbitration court in closed session, preceded by a written “hearing” of the parties, would not violate the parties’ right to defend their interests before the court. This procedure would reinforce the rule of the confidentiality of arbitration, avoid unnecessary costs of scheduling and conducting hearings, and expedite a ruling on the challenge. The last point is crucial, because commencement of a proceeding before the state court does not stay the arbitration, which continues meanwhile and in theory may end before the state court issues its ruling on jurisdiction.
If there is adequate justification for holding a hearing, for example because it is necessary to take testimony from witnesses, the court may then hold a hearing but order that the hearing be closed to the public, either at the request of the parties or on the court’s own initiative.
The court may order that a hearing on issues related to arbitration be closed upon request of the parties if the court finds that there are justified grounds to exclude the openness of the proceeding or there is a risk of disclosure of trade secrets. Both of these grounds are examined by the court, however, and the court may not find that they are adequately supported. But because the proceedings before the arbitration court are confidential, the same confidentiality should be assured by the state court when ruling on arbitration-related issues.
For these reasons, in order to avoid doubts surrounding the ability to conduct state court hearings in closed session concerning arbitration-related issues, particularly when they are being considered at the same time as proceedings are being conducted before the arbitration court, the regulations should expressly provide for an obligation to hold closed hearings, or at least allow the parties to demand that the hearings be closed. Therefore, during the next round of revisions to the Civil Procedure Code, it would be worthwhile considering introduction of the relevant regulations that would assure respect for one of the most important principles of arbitration and reinforce the integrity of the process.
Monika Hartung, Dispute Resolution & Arbitration Practice, Wardyński & Partners
The Polish version of this article was published in Rzeczpospolita on 11 April 2014.