Facing cybersecurity head on: the arbitration community develops guidance on how to tackle this difficult issue

There is an emerging consensus among the arbitration community that parties, arbitral institutions and tribunals in individual arbitration matters must give greater attention to cybersecurity in order to minimise the risks of a successful attack.

International arbitrations can involve parties that are prominent targets or potential targets of cyberattacks.  As part of the arbitral process, those parties may share material which is not in the public domain and access to which may have the potential to influence individuals, employees, share prices, corporate strategies and government policy.  Similarly, the outcome of an arbitration can have significant repercussions in the financial markets, meaning that obtaining draft forms of arbitral awards could be very lucrative for cybercriminals. As such, the arbitral process is a prime target for cyberattacks, particularly if hackers can identify a weak link in the chain of custody.

Over the last year several tools have become available to assist stakeholders in the arbitral process address issues of cybersecurity, including the draft Cybersecurity Protocol produced by a working group from International Council for Commercial Arbitration (ICCA), the New York City Bar Association (NYC Bar) and the International Institute for Conflict Prevention and Resolution (CPR) (see here), and the International Bar Association’s (IBA) Cybersecurity Guidelines (see here).

The threat of cyber attacks

The number of cyberattacks against all types of organisations has rocketed in the last 3-5 years. A UK government survey published on 25 April 2018 found that over 40% of businesses experienced a cybersecurity breach or attack in the last 12 months (accessed here). The survey concluded that cybersecurity is a high priority item for directors or senior managers of 74% of companies.

The sophistication and motivations of hackers range from criminal opportunism all the way to nation-state level attacks. Some hackers are seeking financial gain, while others are motivated by ideology (and some by a mixture of the two). In addition, cyber breaches can arise from inside as well as outside an organisation: the Court of Appeal recently dismissed an employer’s appeal against the High Court’s finding that it was vicariously liable for an employee’s deliberate data breaches. The first instance decision was upheld notwithstanding the employer having appropriate safeguards in place to protect employee personal data and the employee’s specific aim to damage the employer’s reputation and cause financial loss – see here for further detail on Wm Morrisons Supermarkets Plc v Various Claimants [2018] EWCA Civ 2339.

Regardless of their motivation and relationship with the target, hackers carrying out cyberattacks present a very real threat and they are increasingly looking for ways to circumvent businesses’ cyber-defences.

Cybersecurity in arbitration: what can be done?

Given this threat, it is broadly accepted that cybersecurity should be addressed early in the international arbitration process and that reasonable cybersecurity measures should be required of all stakeholders. However, considerable questions remain as to the responsibilities of each participant in the process, the parties’ autonomy to agree what cybersecurity measures to implement, the impact of any inequality of arms between the parties in seeking to tackle cybersecurity threats, and the consequences of a party’s failure (or for that matter a failure by any participant in the arbitral process) to comply with the cybersecurity directions that are made.

The ICCA Cybersecurity Protocol

In order to progress the discussion in this area, a working group made up of representatives from ICCA, the NYC Bar and CPR produced a draft Cybersecurity Protocol.  This draft is currently undergoing a broad consultation process.  In the meantime, the draft offers parties to arbitration a starting point for considering these issues with their counterparties, institutions and tribunals. Several arbitral institutions are also considering what further guidance, duties or powers to provide in this context for arbitrations that they administer.

Much in the same way as the IBA rules on the taking of evidence can be adopted in any given arbitration, the draft Cybersecurity Protocol outlines a framework which parties would need to agree to apply to their arbitral process (either in their arbitration agreement or after the arbitration has crystallised).

The Protocol does not recommend specific technological or organisational measures to ensure that cybersecurity protections are in place in an arbitration, nor does it establish any liability regime for breaches of its terms. Instead, the Protocol proposes to give overall authority to the tribunal to determine what cybersecurity measures are “reasonable” on a case by case basis, even where the parties themselves are otherwise in agreement on what measures should be taken (see Article 13). The commentary on this Article expressly states that the parties “cannot bind the arbitral tribunal” or the “institution administering the arbitration” in this regard.

The IBA Cybersecurity Guidelines

Further guidelines have recently been issued by the IBA, which were developed by the ‘Presidential Task Force on Cybersecurity’. The Guidelines are aimed at lawyers. The Task Force assumed that “large law firms will have implemented cybersecurity strategies” and, therefore, identified single practitioners and smaller firm as their primary audience. However, these recommendations are worth consideration by all stakeholders in the arbitral process. They include, for instance:

  • Technology: ensuring the use of secure networks, device encryption, access control, audit logs;
  • Organisational processes: mandating password protections, periodic system testing, implementing a cybersecurity policy, considering cyber liability insurance; and
  • Training: raising awareness about the importance of cybersecurity and common threats, giving staff essential cybersecurity tips and advice

The Guidelines acknowledge that appropriate and proportionate cybersecurity measures in any scenario will depend on the applicable risk profile. This requires consideration, for example, of the sensitivity of retained data, the size of the organisation(s) and the cost-effectiveness of the security measures proposed. In light of that, appendices D to G of the Guidelines seek to provide cybersecurity recommendations according to the size of the firm in question. These recommendations could also, by analogy, help parties to arbitration determine what cybersecurity measures are required to be implemented by all participants, in the light of the sensitivity of data to be exchanged.

Filling the gaps: do the new HKIAC rules herald greater institutional involvement?

Together, the ICCA draft Protocol and the IBA Guidelines provide a useful roadmap for all stakeholders to address cybersecurity issues in arbitrations.  The placeholders in the draft Protocol (e.g. where the working group stops short of spelling out what measures should be implemented) can be filled in, at least to some degree, by reference to the Guidelines.

Virtually all international arbitrations are currently managed, at least in part, through online digital communications.  As the digitisation of the arbitral process continues (with an increasing number of arbitrations being run in a ‘paperless’ way), institutional rules and guidance will need to keep up with this trend and ensure they address what cybersecurity measures are appropriate in each case and how responsibility will be allocated between stakeholders in the arbitral process to ensure that those measures are implemented.

The latest acknowledgment of this trend is found in the new Hong Kong International Arbitration Centre (HKIAC) Rules due to enter into force on 1 November 2018, which specifically include as a recognised means of communications the upload “to any secured online repository that the parties have agreed to use” (Article 3.1(e) of the HKIAC Rules, accessed here). Other arbitral institutions are considering what changes might be needed to their rules, and provisions which seek to highlight and/or facilitate cybersecurity are expected to feature more prominently in future versions.

Conclusion

All participants in arbitrations need to be aware of how they receive and store data, and of the technical complexities and costs associated with various cybersecurity measures. The proportionality of any given cybersecurity measure will depend on confidentiality requirements and the commercial sensitivity of the data, as well as the stakeholders’ individual data protection obligations (including, for instance, under the EU General Data Protection Regulation (GDPR)). Awareness of the technological, organisational and procedural options available to increase cybersecurity will facilitate a meaningful debate in many arbitrations cybersecurity measures that are required, and provide cogent grounds for tribunals to make an appropriate order where the parties disagree.

If you would like to hear more about cybersecurity in arbitration, please contact Nicholas Peacock, Partner, Vanessa Naish, Professional Support Consultant, Charlie Morgan, Associate or your usual HSF contact.

Nicholas Peacock
Nicholas Peacock
Partner
Email | Profile
+44 20 7466 2803
Vanessa Naish
Vanessa Naish
Professional Support Consultant
Email | Profile
+44 20 7466 2112
Charlie Morgan
Charlie Morgan
Associate
Email
+44 20 7466 2733

Leave a Comment

Filed under Arbitration laws, Confidentiality, Cybersecurity

Leave a Reply

Your email address will not be published. Required fields are marked *