Originally from American Review of International Arbitration - ARIA

Preview Page

I. INTRODUCTION

International commercial law has at its heart the traditions of the lex mercatoria.  Emerging in the Middle Ages, the lex mercatoria is based on a trade system where merchants would travel with their goods to fairs and markets across Europe. Their disputes would be resolved in special local courts where fellow merchants would take the role of judge and jury. These “Merchant Courts” used established custom, created out of the merchants’ own needs and views, as the foundation of regulation, often shunning the legal technicalities of local law. It is in this way that the lex mercatoria developed outside the common law, deriving its authority from the voluntary acceptance by the merchants.

The voluntary acceptance of the “merchant courts” came, at least in part, from the courts’ willingness to recognize the merchants’ need to have commercial courts that recognize and understand the traditions of the commercial world without unnecessarily restricting commerce through legal technicalities.  The merchants considered fundamental the concept of good faith as it allowed them to transact business based on the customs of the merchant world, while trusting the contracting party to live up to, and understand, the same standards.   Merchants who failed to practice the customs of the trade would quickly lose buyers as their reputation of unreliable and/or untrustworthy business practices spread throughout the merchant community.  This regulation through “word of mouth” enforcement, without the use of the state administered courts, furthered the importance of the “Merchant Courts” and their developing lex mercatoria.   In this way the “merchant court” process served both as an efficient method of resolving disputes and as a way to regulate commerce. 

In more recent times, the “word of mouth” enforcement of commercial norms and custom has been abandoned.  In its place has evolved an arbitration process that is partially, if not completely, confidential.   In fact, in an ever increasing number, merchants and businessmen enter arbitration with the expectation  that their dispute will be resolved in a private arbitral proceeding with their business secrets protected by the confidentiality  that was created in their governing arbitration clause.  This leaves us with one important question:  Is the arbitration of today a better form of the arbitral process, with confidentiality as one of the new components, or is the use of confidentiality eroding the concepts that are fundamental to international commercial law?  This article attempts to answer this question by: (1) examining the unsettled definition of confidentiality in arbitration institutional rules and state court decisions; (2) considering the implications of confidentiality in arbitration on business and precedent; and (3) making suggestions for the future.

.