Confidentiality in Arbitration

Introduction

Arbitration as an alternative conflict resolution method has grown significantly in the last decade or two, not only in India but around the world, because arbitration provides for greater party autonomy while also being less expensive and faster than litigation. The Arbitration and Conciliation Act, 1996 (“the Arbitration Act”) governs arbitrations in India, and it was recently amended in 2019 with the enactment of the Arbitration (Amendment) Act, 2019, which introduced the principle of confidentiality in arbitration proceedings in India.

According to Section 75 of the Arbitration Act, confidentiality has been a component of the Act from the beginning as a principle. Section 75 of the Arbitration Act, however, did not apply to arbitration procedures; rather, it was only relevant to conciliation processes. According to Section 75 of the Arbitration Act, all information pertaining to the conciliation proceedings shall be kept confidential by the conciliator and the parties, including the settlement agreement, unless disclosure is required for the agreement’s execution and enforcement. (chambers)[1]

Understanding confidentiality

One of the main benefits of alternative dispute resolution processes over court adjudication has frequently been emphasized: confidentiality. However, the Indian Arbitration & Conciliation Act of 1996 (ACA) did not specifically address confidentiality in connection with arbitration proceedings until the most recent revisions. The modifications bring an explicit clause expanding the idea of secrecy to arbitration processes, which was previously limited to conciliation proceedings under section 75 of the ACA. The adjustments take effect on August 9, 2019 (2019 Amendment).[2]

The Arbitration Act contains no explicit definition of confidentiality. According to the Oxford Dictionary, a “confidentiality” scenario is one in which you expect someone to keep information private. “Confidential” means “intrusted with the trust of another or with his secret affairs meant to be held in confidence or kept secret,” according to Black’s Law Dictionary. The concept of confidentiality is not new; client-attorney privilege is one way that it is deeply embedded in the legal community globally. Client-attorney confidentiality is explicitly guaranteed in India in Section 126 of the Indian Evidence Act, 1872, which forbids solicitors from disclosing any information supplied to them by their clients or recommendations they make to them subject to certain expectations

The idea of secrecy was brought into arbitration procedures via According to Section 42A of the Arbitration Act, all parties involved in the arbitration, the arbitrator(s), and the arbitral institution shall keep the arbitration proceedings confidential, with the sole exception being the disclosure of the arbitral award for the purposes of its execution and enforcement.

The High-Level Committee made recommendations, regarding amendments in arbitration one of them was to introduce the idea of confidentiality in arbitration hearings. The Arbitration and Conciliation (Amendment) Act, 2019 was passed in response to the suggestions, introducing Section 42A, which extended the principle of confidentiality to arbitration procedures.[3]

Confidentiality under the Arbitration and Conciliation Act, 1996

Only Section 75 of the Arbitration and Conciliation Act, 1996 (henceforth referred to as the “Act”), which states that the conciliator and the parties should keep all matters pertaining to the conciliation processes confidential, included the term confidentiality. This duty was only released in order to be put into effect and enforced.[4]

Section 42A was introduced by the Amendment Act, 2019 which begins with a non-obstante clause-

Section 42A

Notwithstanding anything contained by any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentially of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of the award.[5]

Flaws in section 42A

Just looking at Section 42A makes it obvious that the parties to the arbitration, the arbiter, and the arbitral institution are the only ones required to follow the norm of confidentiality. However, Section 42A makes no mention of witnesses, stenographers, transcribers, or other participants in the arbitration proceedings who may be privy to certain information that is confidential in nature. As a result, they would not be required to preserve information pertaining to the arbitration proceedings, which highlights a glaring flaw in the aforementioned principle. Section 42A does, however, provide an exception to the duty of keeping secrecy and exempts disclosure made necessary for the execution and enforcement of the arbitration

However, Section 42A limited itself to a single disclosure exception. To put it succinctly, the narrow exception allowed by Section 42A may result in unstable or unclear circumstances, such as when information pertaining to these arbitration proceedings must be revealed in the event of a Petition under Section 34 of the Arbitration Act challenging the arbitral award, an application under Section 9 of the Arbitration Act seeking interim measures, an appeal under Section 14 of the Arbitration Act contesting the interim measures granted by the tribunal, or an application under Section 14 of the Arbitration Act seeking the termination of the arbitrator’s mandate.[6]

How does Privacy differ from confidentiality?

Confidentiality and privacy are sometimes used synonymously, although they are two distinct ideas. Since arbitration hearings take place in a closed room with a private setup, privacy in these processes would indicate that no third person is allowed to attend or observe the proceedings. Put otherwise, privacy simply refers to the fact that parties other than the arbitrator, witnesses, and attorneys are not permitted to attend arbitration hearings. On the other hand, confidentiality requires that all material, including papers and testimony presented during the proceedings and the award, must be kept private and not be published or revealed by any party.[7]

Indian perspective:

India has now proposed the Arbitration and Conciliation (Amendment) Bill 2018 in an attempt to become one of the few nations that address the issue of secrecy in their domestic arbitration legislation. The bill is currently being discussed in the Rajya Sabha after being introduced in the Lok Sabha on July 18, 2018, and passed on August 10, 2018.
The recommendations of a High-Level Committee led by Justice (Retd.) B. N. Srikrishna forms the basis of the Bill. The Committee’s main responsibility was to look into methods to make arbitral institutions stronger and make recommendations for how to make India’s arbitral system more effective. Therefore, in order to stay up to date with global arbitration norms and enhance the worth and credibility of India’s arbitration process, a few changes are made in the proceedings.

If the disclosure is necessary for the award’s implementation and enforcement, is expressly only included in the Bill as an exemption to the requirement. The award’s “implementation and enforcement” refers to specific circumstances. There exist several different scenarios in which a party can be obligated to reveal the outcome or specifics of the litigation that fall outside the purview of the established exception. For example, when a court appoints arbitrators when a party requests temporary relief from the court, when a party requests that the award be set aside under S.34 when a party appeals an arbitrator’s interim ruling, etc.

Furthermore, a party may be required by statute to divulge information about the arbitration process, for example, under financial reports or SEBI laws. In these more straightforward situations, one could argue that disclosure is allowed because the parties have rights that are expressly guaranteed by law and that the secrecy clause did not intend to be violated.

Although there is a specific provision governing confidentiality in conciliation processes via S.75, the Arbitration & Conciliation Act, 1996, which is the current legislative framework, is silent on secrecy in arbitration. Furthermore, no case law has established an implied obligation of confidentiality, despite the Supreme Court of India appearing to imply such a responsibility in mediation procedures. Regarding the obligation of confidentiality and its exceptions, there is no national agreement. In an ideal world, the Indian courts would have taken the common law stance on the matter instead of passing this amendment bill.[8]

Understanding confidentiality internationally

The parties to the arbitration may include a confidentiality clause in the arbitration agreement if they so choose. The UNCITRAL Model Law on International Commercial Arbitration does not specifically address confidentiality in the context of arbitration. The UNCITRAL Model Law does not make confidentiality necessary; rather, it places more emphasis on party liberty. Additionally, there are no explicit provisions pertaining to confidentiality in the UNCITRAL Arbitration Rules, with the exception of Article 32(v), which prohibits the publication of the award without the parties’ consent. Confidentiality is expressly provided for under Singapore International Arbitration Centre Rule 34.6.[9]

According to London Court International Arbitration (LCIA)

The LCIA Rules mirror the common law position insofar as confidentiality does not survive where disclosure is required by “legal duty to protect or pursue a legal right or to impose or challenge an award in legal proceedings before a state court or other legal authority” (Article 30). Accordingly, parties may be left exposed with the LCIA Rules providing no specific protection, necessitating carefully worded arbitral agreements that protect confidentiality as a safety net against this lacuna.[10]

Singapore International Arbitration Act:

Similar implied duties of confidentiality have been declared by the courts in Singapore, where the degree of confidentiality to be upheld would be decided case-by-case using the factual matrix as a guide. Crucially, in contrast to the majority of other jurisdictions, the Singapore International Arbitration Act recognizes and guarantees secrecy during the arbitration proceedings in court. According to Section 22 of the SIAA, any party to the proceedings may request that the court consider their case in a location other than an open courtroom. Furthermore, if the parties give their mandatory consent, the courts have the authority to issue any appropriate directives about what information about the proceedings may be published while such conflicts are before them.[11]

Cases on confidentiality

It was noted in Oxford Shipping Co. LTD. v. Nippon Yusen Kaisha that the idea of private arbitration primarily stems from the parties’ desire to settle their disagreements amicably and exclusively through arbitration. Furthermore, the agreement contains an implied duty that shields third parties from having their attendance at the arbitration proceedings forbidden. English courts established a long list of papers that had to be kept private throughout the arbitration in DOLLING-BAKER v. MERRETT and Another. The court further distinguished the level of strictness. However, the public interest principle plays a major role in the Australian High Court’s decision-making in this matter. Additionally, it was noted that there is a secrecy requirement of some kind on the

Exceptions:

While acknowledging the implicit confidentiality, the Ali Shipping v. Shipyard Trogir case in England nevertheless recognized that this duty was not absolute and cited four exceptions to it:
1- The parties’ agreement to the disclosure;

2- A court’s directive or permission for the disclosure of records or evidence;
3- Where disclosure is required in the interest of justice

4- Where it is justifiably necessary to safeguard the parties’ legal interests in the arbitration.

While many nations lack any provisions pertaining to confidentiality in their national arbitration laws, two notable exceptions are New Zealand and Spain. The confidentiality of the award, papers, and information related to the procedures is guaranteed by S.14 of the New Zealand Arbitration Act 1996 unless the parties agree otherwise. The Spanish Arbitration Act 2003’s Art.24(2) mandates that any information obtained in connection with or during an arbitral action be kept confidential.[12]

Conclusion:

With one exception, the 2018 amendment subjects the parties to an arbitration agreement to extremely extensive secrecy restrictions. The text does not address exceptions to the rule, such as permission, court orders, judicial leave, and disclosure where (and to what extent) it is required to safeguard the legal interests of an arbitrating party. Waiver of secrecy rules may also be justified by matters of public interest, such as when the government is one of the parties involved, or by the need for a just resolution of disagreements.
Because arbitration is a private process, the parties can air out their complaints and talk about their financial situation, proprietary knowledge, and other issues without having to deal with media attention and public scrutiny.

This makes the amendment extremely important. But before that happens, the potential ambivalence must be addressed. In order to resolve the ambiguity, the authors propose amending the aforementioned section to include exceptions to the secrecy obligation while making sure that the phrase is not overly broad. It might also be taken into consideration to include the potential repercussions of violating such secrecy. Furthermore, it is stated that parties should be free to determine their own boundaries for confidentiality, meaning that such a grant of confidentiality should be derogable.[13]

Reference(s):

[1] ‘CONFIDENTIALITY IN ARBITRATION PROCEEDINGS | Article | Chambers and Partners’ <https://chambers.com/articles/confidentiality-in-arbitration-proceedings> accessed 28 June 2024.

[2] ‘Confidentiality under the Indian Arbitration & Conciliation Act of 1996’ <https://www.ibanet.org/article/015535E1-E477-42E7-A7CC-D6DC978975D5> accessed 28 June 2024.

[3] ‘CONFIDENTIALITY IN ARBITRATION PROCEEDINGS | Article | Chambers and Partners’ (n 1).

[4] Anubhav Pandey, ‘Confidentiality in Arbitration Vis-à-Vis Arbitration and Conciliation (Amendment) Bill, 2018’ (iPleaders, 8 September 2018) <https://blog.ipleaders.in/confidentiality-arbitration-vis-vis-arbitration-conciliation-amendment-bill-2018/> accessed 28 June 2024.

[5] Guest, ‘Data Confidentiality under the Indian Arbitration Regime: Challenges and Opportunities’ (IndiaCorpLaw, 22 July 2020) <https://indiacorplaw.in/2020/07/data-confidentiality-under-the-indian-arbitration-regime-challenges-and-opportunities.html> accessed 28 June 2024.

[6] ‘CONFIDENTIALITY IN ARBITRATION PROCEEDINGS | Article | Chambers and Partners’ (n 1).

[7] ‘The Who, Why and When of Confidentiality in Arbitration Proceedings | SCC Times’ <https://www.scconline.com/blog/post/2021/01/21/the-who-why-and-when-of-confidentiality-in-arbitration-proceedings/> accessed 28 June 2024.

[8] Pandey (n 4).

[9] ‘CONFIDENTIALITY IN ARBITRATION PROCEEDINGS | Article | Chambers and Partners’ (n 1).

[10] ‘Confidentiality in International Arbitration: Contractual Agreement and Institution Rules : Clyde & Co’ <https://www.clydeco.com:443/insights/2023/05/confidentiality-in-international-arbitration-contr> accessed 28 June 2024.

[11] ‘Confidentiality in International Commercial Arbitration: Determining Factor for Safeguarding the Legitimacy of the Process – American Review of International Arbitration’ <https://aria.law.columbia.edu/confidentiality-in-international-commercial-arbitration-determining-factor-for-safeguarding-the-legitimacy-of-the-process/> accessed 28 June 2024.

[12] Rachit Garg, ‘Defining the Indefinable : Practical Problems of Confidentiality in Arbitration’ (iPleaders, 7 July 2021) <https://blog.ipleaders.in/defining-indefinable-practical-problems-confidentiality-arbitration/> accessed 28 June 2024.

[13] ibid.