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17 January 2018

Commercial mediation – confidentiality matters

International commercial mediation has become increasingly important in international dispute resolution. Commercial contracts now regularly contain business-friendly mediation clauses and the number of cases is on the rise. 

A key element of mediation is confidentiality. When a neutral third person – the mediator – assists in commercial negotiations between the parties, open communication and disclosure of crucial aspects of the case are essential. Openness clearly increases the likelihood of a settlement. 

Confidentiality is thus indispensable for every mediation process. Mediation is only an effective dispute resolution tool that parties benefit from fully if confidentiality is duly protected, both internally and externally. While the internal dimension of confidentiality concerns the disclosure of information between the parties and the mediator, the external dimension concerns the disclosure of information towards third-party entities, in particular courts and arbitral tribunals.

The internal dimension of confidentialityAs a matter of principle, the parties in dispute either explicitly or implicitly (by reference to institutional mediation rules) agree that the mediator shall be obliged not to disclose any information provided by one party in the absence of the other party, unless the party giving the information expressly waives such confidentiality towards the other party. A scenario where the mediator works with only one party at a time is commonly referred to as a "caucus". It is a procedural tool regularly applied by mediators. Caucusing requires a high level of integrity and an extensive obligation of confidentiality on the part of the mediator. 

The external dimension of confidentialityOne of the main advantages of mediation is its compatibility with other dispute resolution methods. If the parties fail to reach a consensual solution and judicial or arbitral proceedings become necessary, confidentiality may become a source of further conflict. While mediation serves to achieve a negotiated settlement, litigation and arbitration allow a third party, be it a judge or an arbitrator, to decide which party will prevail. What is required is a process for establishing the relevant facts of the case. This, in turn, requires the disclosure of evidence. Critically, the parties may be tempted to leak a document or other critical information that they obtained during a prior mediation process. At the same time, judges or arbitrators cannot simply cast a blind eye on confidential information unlawfully slipped into the proceedings. It is precisely because of this understanding of the judiciary's duties, at least in the civil law tradition, that the principle of confidentiality may be compromised. In fact, even if the parties explicitly agreed that information disclosed during the mediation process should be kept confidential, the effect of such protective measures is in no way absolute. 

Notably, under the main legal framework for international mediation seated in the European Union – EU Directive 2008/52 on certain aspects of mediation in civil and commercial matters ("EU Mediation Directive") – and under the national laws implementing the EU Mediation Directive, confidential information is protected only insofar as testimonial evidence is concerned. The mediators and administrators of the mediation process cannot be compelled to give evidence in civil and commercial judicial or arbitration proceedings regarding information arising out of or in connection with a mediation process. This rule applies unless the parties agree otherwise, or if overriding considerations of public policy are concerned, or if disclosing the content of the agreement resulting from mediation is necessary in order to implement or enforce that agreement. 

Accordingly, under Austrian law, mediators may refuse to testify before courts or tribunals if their testimony on a particular subject matter would violate their confidentiality duties under Section 3 of the Austrian EU Mediation Act (EU-Mediations-Gesetz) and Section 321 of the Austrian Code of Civil Procedure. However, while in certain jurisdictions parties may indeed be restrained by injunction from breaching a contractual confidentiality obligation and courts or arbitral tribunals cannot consider confidential information, Austrian law does not prevent parties from leaking confidential information obtained during mediation. Even if the confidential information is introduced into court or arbitration proceedings by a breach of confidentiality duties, the other party's hands are essentially tied. The only available remedy is a claim for damages for breach of contractually stipulated confidentiality. 

Protecting confidentialityConfidentiality is doubtless an important element of every successful mediation process and therefore requires careful protection. The parties in dispute will be willing to disclose information without risking their legal case being jeopardised in subsequent judicial or arbitration proceedings only in a confidential environment. The good news is that reports of cases where confidentiality was breached and confidential information was abused before a court or arbitral tribunal are very rare. Nevertheless, in addition to setting up a contractual framework that bolsters the protection of confidentiality, parties in mediation are also advised to pay particular attention to how they disclose information during the mediation.

Further reading

Just how confidential is arbitration?
Disclosure in Austrian civil proceedings


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