Sursa: Juridice.ro
Andreea-Dorina Marcău
INTRODUCTION
It is without a doubt that the practical relevance of contract negotiation represents a private law cornerstone. The complexities and implications of proper negotiation, with the finality of a successfully performed contract, have even been likened, by some authors, to an interdisciplinary art[1]. The obligation of confidentiality presents itself, therefore, as one of the essential aspects of such negotiations, considering the potential (but oftentimes essential) delicately confidential nature of the subject matter of the negotiated contract.
Deeply rooted in the fundamental private law principle of negotiating in good faith, the duty of confidentiality presents itself, therefore, as an essential aspect of relevance for those negotiating parties who wish to ensure the legal protection of the confidential information they disclose. This protection is facillitated through the legal means of pre-contractual civil liability and the penalties and other conquences which, as thus, occur in the case of a breach of the duty of liability.
The aim of this study is, therefore, to briefly analyse some of the important theoretical and practical aspects inherent to the obligation of confidentiality during negotiations. As such, the theoretical aspects of incidence shall be assessed accordingly alongside the appropriate case-law, with both landmark cases (Coco v AN Clark) and with more recent cases which have presented some degree of practical importance and innovation by courts seized to decide on this issue. Finally, there shall be a brief dedicated chapter to the practice of international commercial arbitration, the inherent principles of confidentiality in arbitration, and how the duty of confidentiality during negotiations may find itself relevant to the practice and idea of international commercial arbitration, as a whole.
I. THEORETHICAL ASPECTS
It has been assessed that at the core of a successful negotiation lies a positive pre-contractual relationship between the negotating parties essentially based on the good faith of the participants[2]. Therefore, trust is a fundamental necessity, the lack of which causes risk for the negotiating parties and their interdependent economical interests[3]. The principle of acting in good faith when participating in the fulfillment of a contract is generally recognized by various systems of law, civil law and common law alike[4]. After all, when negotiating there is only the potential of a contract[5] but the scope sought by the parties is closely tied with an economical interest that requires trust and serious intent for its finalization. Otherwise, there is a real possibility of loss, at least financial, in case the negotiations are dropped and the potential contract failed to materialize. Moreover, the concept of trust, in the sense of respect of the other’s privacy, is considered an inherent right of the negotiating parties.[6]
The obligation of confidentiality therefore appears as a means to ensure that trust between the negotiating parties, under the auspices of the right to privacy, the right to secrecy and the principle of acting in good faith[7]. There can also be appropriate sanctions in the case of breaching this obligation[8]. It is also important to note, for the sake of a proper definition of the term, that the concept of confidentiality has been considered, by some authors, as largely superior to that of the simple privacy of the parties[9]. Therefore, the negotiating parties may have it in their interest that any of the sensitive information they have disclosed to one another during the negotiation stages remain confidential and shall not be shared to any external persons.[10]
In fact, the obligation of confidentiality may even be extended to the very information that a contract is being actively negotiated between certain parties[11], thus intending to maintain complete secrecy over the pre-contractual processes. The matter of confidentiality has, as such, been considered to be introduced at the will of at least one of the parties, if their interests shall require such an interdiction of disclosure[12]. The obligation of confidentiality may also be extended not only to the direct participants in the contractual negotiation stage, but also to their respective employees and associates who may be required to come into contact with the non-disclosable information.[13]
The District Court of Quebec has ruled upon the inherent preeminence of the duty of confidentiality in the negotiation phase as a natural implication of the principle of the obligation of good faith in the precontractual phase, in the decision given in Anastasiu c. Gestion d’immeubles Belcourt[14]. Basically, the case revolved around the unauthorized usage of the information obtained by a contractor from an architect, within the means of a negotiation pertaining to the potential construction of a residential complex.
In essence, the contractor had proceeded to disclose and benefit from the confidential information given to him in order to undertake a project of his own, without the involvement of the disclosing party, with whom negotiations had failed[15]. As such, in assessing if the conduct of the contractor was in accordance with the principles of good faith and confidentiality, the Canadian Court considered that unjust use of information disclosed in confidence could not be tolerated by the law, in accordance with the aforementioned fundamental principles.[16]
The legal manifestation of the obligation of confidentiality is generally a confidentiality agreement or, more extensively, non-disclosure agreements (NDAs)[17]. Therefore, when drafting and negotiating a commercial contract, it would oftentimes be in the best interest of the parties to provide for a legally binding agreement on the obligation of confidentiality[18]. However, in most cases such an obligation may be expressly provided for through international soft law provisions, when it comes to matters of international commercial contracts. For example, the UNIDROIT Principles of International Commercial Contracts clearly formulate the parties’ duty to confidentiality in connection to the disclosed information during negotiations, “whether or not a contract is subsequently concluded.“[19]
Very similarly, the Principles of European Contract Law (PECS) conclude that should confidential information be ” given by one party in the course of negotiations, the other party is under a duty not to disclose that information or use it for its own purposes whether or not a contract is subsequently concluded“[20]. The Romanian Civil Code also provides for a similarly worded rule regarding the duty to confidentiality in pre-contractual negotiations, in Art. 1184.
With regards to the potential contents of such an obligation of confidentiality, it must also be specified that, in some cases, the obligation of confidentiality is not absolute and some exceptions of disclosure may be allowed at the agreement of the parties[21], such as information already existing in the public domain and thus easily accessible by third parties[22]. Confidentiality also does not include information that had been ordered to be disclosed by a court of law[23]. Other possible content of the obligation of confidentiality may be, as such, referring to what precautions the parties should take in order to protect the confidential information, the obligation to return confidential documents on request or the non-competition interdiction to use the acquired information for one’s own financial interest.[24]
The duration of the obligation of confidentiality is also a matter of discussion but, generally, it is not limited to the concrete duration of the negotiations[25]. As such, generally the obligation to confidentiality extends itself in time to a substantial post-negotiation duration, in order to protect the interest of the disclosing party[26]. Most importantly, the breaching of the obligation of confidentiality in the negotiation stage comes with inherent sanctions and penalties, in order to ensure its effectiveness.[27]
II. RELEVANT JURISPRUDENCE REGARDING THE OBLIGATION OF CONFIDENTIALITY IN NEGOTIATIONS
No legal concept or theory can be properly assessed without the analysis of its implications in the reality of practice. Therefore, in order to understand the relevance of the obligation of confidentiality in negotiations, it is paramount to refer to the important jurisprudence in this sense. As such, the incidence of the duty of confidentiality becomes present in the case of its breach, in order to establish the civil liability that may thereafter occur[28]. Most importantly, recourse to the courts proves necessary in this respect, especially in the eventuality in which certain aspects of the aforementioned breaches have elements of practical and legal novelty.
First of all, a case-law that is regarded as classic[29] jurisprudence when it comes to the issue of pre-contractual confidentiality is the 1969 Coco v. A.N. Clark (Engineers) Ltd. case-law of the English and Wales High Court. The practical importance of this decision comes from the criteria for assessing the breach of confidence that the Court had applied, criteria which would become a future point of reference for the English reglementations on confidentiality[30]. The dispute revolved around a motor-assisted moped which Coco, the claimant, wanted to develop, while entering into negotiations with A.N. Clark, the respondent, to facilitate this development and thus disclosing the relevant information.
However, when negotiations fell through and the respondent proceeded to develop its own moped instead, the claimant decided to initiate court proceedings, believing that A.N. Clark was using for their own design the confidential information given to them through the previous negotiations by the former. Therefore, the Court was called upon to decide whether A.N Clark had indeed breached the obligation of confidentiality undertaken in the pre-contractual negotiations with Coco. In this respect, three elements were established for the successful assessment of a breach of confidence: that the information must be confidential in nature, meaning not in the public domain or knowledge[31], the information must have been communicated in circumstances implying confidence[32] and lastly, the disclosed information must have been used without authorization and in the detriment of the disclosing party.[33]
Although a breach of confidence was not discovered in the circumstances of this case (it was ultimately considered that the claimant’s design was an unoriginal one easily accessible to the general public), the Coco v. A.N. Clark case is considered to be one of the founding pillars of confidentiality law, mainly for the creation of the so-called “Coco three-step test”.[34]
Second of all, it is important to illustrate the possible unwanted implications of not entering into an express confidentiality agreement in connection to the incidence of an implied duty of non-disclosure in a context of temporal recency. In this regard, relevant jurisprudence comes from the Singaporean Supreme Court, in the 2017 judgement in Rohm and Haas Electronic Materials CMP Holdings, Inc v NexPlanar Corp[35]. The dispute at hand revolved around the Court’s finding of a lack of an express agreement of confidentiality between the claimant and the respondent during negotiations of a commercial nature. Therefore, the claimant argued that a patent of theirs had been infringed upon by the respondent through the means of the confidential information the latter had received upon pre-contractual negotiations.
The High Court then proceeded to acknowledge that no express agreement to a duty of confidentiality had occurred between the two parties and as such needed to assess whether such an obligation would have been legally implied in this case, in order to ascertain the incidence of civil liability. In this sense, the logic of the High Court was the following: first of all, that the implied obligation of confidence in the pre-contractual negotiations exists when “information of commercial or industrial value was being given on a business-like basis and with a common object in mind”[36] and considered that this was indeed the case here. Then, in order to further assess this, applied the reasonable observer argument[37] to conclude that “a reasonable man […] would have realized that the information was given to him in confidence.”[38]
Moreover, the Court viewed it relevant to apply, by evoking the case-law tradition even almost half a decade after the initial judgement of the English Court, the “three-step test” devised in Coco v A.N. Clark. It was only after all of these considerations that the High Court had demonstrated that there was an obligation of confidentiality in negotiations (albeit only an implied one). The opinion of the literature is that the main takeaway from this case-law is that parties to a negotiation should not rely on an uncertain implied duty to confidentiality and should, instead, opt to ensure their interests by signing a confidentiality agreement.[39]
There are various other relevant jurisprudential decisions which serve to assess different aspects of the issue of confidentiality in pre-contractual negotiations. One last such relevant case-law is the decision of the English and Wales High Court in the Aga Medical Corporation v Occlutech (UK) Ltd case, revolving around the alleged breach of the duty of confidence by the defendant regarding the disclosure of an unreleased, patented medical device[40]. In this situation however, it was first of all reiterated that an obligation of confidence in negotiations only arises when there is “a business-like basis with a common commercial object in mind.”
This was as such considered not be the case here, as the aforementioned disclosure was not made within the purpose of the commercial contractual negotiations between the parties. Moreover, no confidentiality agreement was entered into in connection to the scope of the disclosed patent and as such, it was assessed by the High Court that the medical device was not protected confidential information and that there was, therefore, no breach of a pre-contractual obligation to confidentiality[41]. The importance of this case aims to once again stress upon the importance of entering into a valid pre-contractual confidentiality agreement when negotiating in any contractual manner, in order to ensure the legal protection of the sensitive information that may be potentially disclosed in any by-context of the negotiations.[42]
III. THE OBLIGATION OF NEGOTIATION CONFIDENTIALITY AND ARBITRATION
Arbitration is by definition a private procedure that is characterized by the supremacy of the will of the parties who, through their valid consent, forego the jurisdiction of the courts for the resolution of their contract related disputes[43]. Therefore, through the means of a valid arbitration agreement[44] it becomes possible to entertain the jurisdiction of an arbitral tribunal to settle, through its own valid decision, the arbitral award, any disputes related to or arising from a certain contractual matter[45]. It can, as such, be reasonably assumed that arbitration oftentimes comes with an expectation of confidentiality, provided the nature of the contractual relationships between the parties entering into an arbitration agreement.
However, besides the inherent privacy and potential confidentiality of the arbitration proceedings, a link can also be drawn between arbitration and the obligation of confidence in negotiations. In this sense, reference can be made with regards to certain rules on arbitration regarding evidence[46] and, of course, the possibility to commence arbitration in case of an alleged breach of the duty of pre-contractual confidentiality.[47]
First of all, the obligation of pre-contractual confidentiality could have harsh implications on the admissibility of certain evidence, as the arbitral tribunal may have the possibility to consider the exclusion of certain forms of evidence in the arbitral proceedings, should they be able to seriously breach one’s obligation of confidentiality[48]. In this respect, the 2020 IBA Rules on Taking Evidence in International Arbitration provide for this possibility in Article 9(2), stating that, on “grounds of commercial or technical confidentiality that the Arbitral Tribunal determines to be compelling;” documentary evidence, statements or testimonies may be excluded from evidence[49]. Therefore, the practice of arbitration is harmonized with the principle of commercial confidentiality, especially if part of the evidence submitted (or requested) by a party pertains to matters which are protected under the obligation of confidence (both pre-contractual and contractual).[50]
International arbitration can, therefore, be oftentimes centered around the parties’ need for confidentiality at all stages of their negotiations and then contractual execution. As such, it is paramount for the parties to ensure this confidentiality by entering into a confidentiality agreement, in order to avoid disclosure of documents[51]. This issue is mirrored by the jurisprudence of the Swedish Supreme Court in the Bulbank decision[52]. In this case, a partial award issued by the arbitral tribunal in ad-hoc arbitration had been published by the claimant, AIT, in an International Arbitration Report[53]. The Supreme Court of Sweden was furthermore seized, as a final authority, to asses if there was a breach of confidentiality in publishing the partial award in detriment to Bulbank’s claims of an inherent duty of confidentiality in international arbitration.
The Court, however, ruled in favor of AITs actions, considering that, lacking a valid confidentiality agreement that the parties had entered into during the precontractual stage regarding keeping potential disputes confidential (and none of the arbitration rules the parties had chosen indicating an obligation in this sense[54]), there could be no implied duty of confidentiality between the disputing parties in the arbitration. Therefore, the decision of the Swedish court was that there was no breach of the obligation of confidentiality. This cannot, however, be seen as the unanimous opinion of all legal traditions regarding the duty of confidentiality in international arbitration.[55]
Pertaining to the concrete assessment of breaches of the duty of confidentiality in the negotiation stage, in this sense, precontractual liability can be established by means of international arbitration, as long as there exists a valid arbitration agreement[56] and an arbitrable dispute[57]. However, the ICC presents only one case-law relating to the issue of pre-contractual liability, unrelated to question of the duty of confidentiality in negotiations[58]. The statement remains, still, that international commercial arbitration and the pre-contractual negotiations are bound in the common spirit of the utmost importance of confidentiality and by the implications of the duty that arises thereon.[59]
CONCLUSION
The aim of this essay was to give a brief analysis on the obligation of confidentiality during negotiations in international commercial contracts by exemplifying some relevant case-law pertaining to potential breaches of this aforementioned obligation and the implications therein. Moreover, an attempt was made to bridge a potential connection between the duty of confidentiality and the practice of international arbitration, considering the private character of the latter and the need for disclosure of certain confidential matters, as necessary evidence.
It is clear that the obligation of confidentiality is of essential importance in the negotiation of international commercial contracts and that this is a duty that transcends the confines of a completed contract, applying regardless the negotiations proved to be successful or not. Therefore, the case-law identified above has sought to indicate the possible means of assessing pre-contractual liability for a breach of confidentiality and how one may consider that the parties were, indeed, bound by such an obligation.
Moreover, unwanted results may arise if the parties choose to rely merely on an implied obligation of confidence, in certain cases. All in all, there are many facets to pre-contractual confidentiality that need to be taken into account for the better protection of the interests of the disclosing parties.
[1] Jung, Stefanie, and Peter Krebs. The Essentials of Contract Negotiation. Springer, 2019, pp. 1-7.
[2] Kullolli, Dr. Brunela. “Confidentiality – a Two-Appeal Principle.” European Journal of Social Sciences, vol. 1, no. 3, Revistia, Nov. 2018, p. 53.
[3] Lewicki, Roy J., and Beth Polin. op.cit. p. 162.
[4] Jung, Stefanie, and Peter Krebs, op. cit., pp. 7-9.
[5] ibidem.
[6] David B. Falk, The Art of Contract Negotiation, 3 Marq. Sports L. J., pp. 1-3.
[7] Lewicki, Roy J., and Beth Polin. op.cit. pp. 161–164.
[8] ibidem.
[9] Jung, Stefanie, and Peter Krebs. op.cit. 2019,pp.152-160.
[10] Lewicki, Roy J., and Beth Polin. op.cit. pp. 161.
[11] idem, p.172.
[12] idem, pp.170-175.
[13] ibidem.
[14] Anastasiu c. Gestion d’immeubles Belcourt Inc., [1999] R.J.Q. 3068 (C.Q.).
[15] ibidem.
[16] ibidem.
[17] Egan, Byron F. “Confidentiality Agreements Are Contracts with Long Teeth.” Tex. J. Bus. L. 46, 2014, pp.1-2.
[18] ibidem.
[19] UNIDROIT Principles of International Commercial Contracts 2016, Article 2.1.16, accesible on https://www.unidroit.org/wp-content/uploads/2021/06/Unidroit-Principles-2016-English-bl.pdf (consulted on 28.05.2024).
[20] Principles of European Contract Law, PECS, Article IV.6.13, accessible on https://www.trans-lex.org/936800, (consulted on 28.05.2024).
[21] Jung, Stefanie, and Peter Krebs. op.cit., pp.170-182.
[22] ibidem.
[23] ibidem.
[24] ibidem.
[25] Kullolli, Dr. Brunela op.cit., pp. 3-5.
[26] Lewicki, Roy J., and Beth Polin. op.cit. pp. 172-175.
[27] see UNIDROIT Principles of International Commercial Contracts 2016, Art. 2.1.16.
[28] Lewicki, Roy J., and Beth Polin. op.cit., pp. 180-190.
[29] Aldmour, Abdullah M., The Role of Good Faith in the Pre-Contractual Responsibility in International Contracts: A Comparative Study between Common Law and Civil Law (2014), pp.1-5.
[30] Aplin, Tanya. “Coco v AN Clark (Engineers) Ltd (1969).” Forthcoming in J. Bellido, Landmark Cases in Intellectual Property Law, Hart, 2017. pp. 3-7.
[31] see Coco v AN Clark (Engineers) Ltd [1968] F.S.R. 415 (01 July 1968).
[32] ibidem.
[33] ibidem.
[34] Aplin, Tanya. op cit., p.8.
[35] Rohm and Haas Electronic Materials CMP Holdings, Inc. v NexPlanar Corp SGHC 310.
[36] ibidem.
[37] ibidem.
[38] ibidem.
[39] Huang, Ryan. Confidentiality in pre-contractual negotiations. Feb. 2018, accesible on https://www.yusarn.com/wp-content/uploads/2019/12/201802-Confidentiality-in-Pre-Contractual-Negotiations.pdf, (consulted on 30.05.2024).
[40] Aga Medical Corporation v Occlutech (UK) LTD 2015 RPC 12.
[41] ibidem.
[42] Huang, Ryan, op.cit..
[43] Lew, Julian DM, Loukas A. Mistelis, and Stefan Michael Kröll. “Arbitration as a dispute settlement mechanism.” Comparative International Commercial Arbitration, 2003, pp. 1-8.
[44] ibidem.
[45] ibidem.
[46] see 2020 IBA Rules on Taking Evidence in International Arbitration.
[47] Forsberg, Jenny. “A Certain Uncertainty: The Duty of Confidentiality in International Commercial Arbitration.”, 2013., p.3.
[48] Lew, Julian DM, Loukas A. Mistelis, and Stefan Michael Kröll. op.cit., pp.21-27.
[49] ibidem.
[50] Forsberg, Jenny op.cit., pp.3-5.
[51] ibidem.
[52] A.I. Trade Finance Inc. v. Bulgarian Foreign Trade Bank Ltd. and GiroCredit Bank Aktiengesells.
[53] ibidem.
[54] ibidem.
[55] Forsberg, Jenny, op.cit., p.5.
[56] Kozárek, Tomáš. “Pre-contractual Liability and International Commercial Arbitration.” COFOLA INTERNATIONAL 2015: Current Challenges to Resolution of International (Cross-border) Disputes. Conference Proceedings. Masarykova univerzita nakladatelství., pp. 1-4.
[57] ibidem.
[58] ibidem.
[59] Lew, Julian DM, Loukas A. Mistelis, and Stefan Michael Kröll. op.cit., pp. 27-32.
Drept MD 