CONFIDENTIALITY IN ARBITRATION

ABSTRACT:

Confidentiality secures the sensitive information exchanged during the discussion by ensuring no third party has access to the information except to the arbitrator. This article explores key clauses essential for structuring confidentiality agreements: the Parties Clause delineating authorized access to confidential data, the Term of Confidentiality Clause addressing duration specifics, the Arbitration Clause defining dispute resolution methods, the Jurisdiction Clause specifying applicable courts, and the Mandatory and Legal Disclosure Clause ensuring compliance with legal obligations.

Exceptions to confidentiality include consent of parties, public policy considerations necessitating transparency, court orders mandating disclosure for legal proceedings, and statutory requirements for disclosure. Challenges to confidentiality encompass jurisdictional disparities, lack of statutory codification in some regions, and practical difficulties in maintaining confidentiality throughout arbitration. In India, despite the evolution of arbitration laws, explicit statutory provisions on confidentiality are still limited. Judicial interpretations and institutional rules have strengthened confidentiality practices.

INTRODUCTION:

Confidentiality is the bedrock of arbitration, providing a private environment for the parties to resolve any disputes. Confidentiality is an indispensable part of arbitration, which ensures that the parties are willing to share all the information due to the private atmosphere enabling more effective settlement. This feature also helps preserve the company’s reputation. Although confidentiality is quite significant it has its disadvantages too. There is no codification of the said clause. Moreover, practical implementation of the clause is not easy, it requires cooperation from both parties. In some countries, confidentiality agreements are upheld, containing various clauses to ensure privacy during discussions and procedures. There are certain situations as well where it is not possible to maintain confidentiality like when any legal requirements arises, due to court or legal proceedings etc.

In this article, we will examine the various reasons why courts may mandate the disclosure of confidential information from arbitration proceedings, the potential effects this can have on the arbitration process, and strategies for parties to maintain confidentiality while anticipating such legal requirements. Grasping these elements is essential for those engaged in arbitration, as it aids in balancing the need for privacy with the demands for legal transparency.

EXPLANATION OF ARBITRATION:

Arbitration is a procedure in which a disagreement is submitted, by agreement of the parties, to one or further judges who make a list decision on the disagreement. In choosing arbitration, the parties conclude for a private disagreement resolution procedure rather of going to court. It’s an alternate disagreement resolution system (ADR). Also, arbitration is a speedy recovery tool for resolution of controversies and maintains confidentiality of the parties.

CONFIDENTIALITY IN ARBITRATION:

Confidentiality in arbitration refers to the duty of the adjudicator as well as the parties involved to maintain the affairs of the proceedings to themselves. It’s a pivotal aspect of any indispensable disagreement resolution system. By fostering an environment of trust, individuals communicate openly and share information without hesitation, resulting in improved and more effective decision-making.

Confidentiality in arbitration is a fundamental element that sets it apart from traditional court proceedings, providing parties with a private venue for resolving disputes. Confidentiality in arbitration ensures that information isn’t made public which may harm the character of the parties and its competitive positions. Private resolution in the matter of arbitration also encourages the parties to be foursquare and hence they expose all the information without any reluctance. Parties prefer to keep the affairs of the proceedings private so as to cover itself from any differing opinions of the public and hence maintain its character.
All the proceedings, attestations, documents presented, any cessions and awards are kept private. It’s substantially done so as the parties feel free to express themselves. The parties to arbitration are generally needed to subscribe confidentiality agreements and judges are bound by their duty to maintain confidentiality.

IMPORTANCE OF CONFIDENTIALITY IN ARBITRATION:

Confidentiality is extremely important in arbitration as all the affairs remain with the parties and no information can be disclosed without the consent of the parties. It is one of the key elements of arbitration. Unlike civil court proceedings, the information is confidential rather than being open to public which enables the parties to disclose the facts more clearly and without any hesitation; hence the results are much more fruitful and beneficial. Also, many conflicts in arbitration involve businessmen which includes their trade secrets, sensitive information and other data that they do not prefer to disclose to the public. Here, arbitration proves to be beneficial due to the availability of confidentiality clause.  Furthermore, public proceedings may tarnish its image and losses may be incurred. Arbitration protects the reputation without any public criticism. Confidentiality clause also ensures honesty and open conversations leading to an effective dispute resolution. The privacy and efficiency of arbitration can lead to reduced legal costs compared to public court proceedings. Hence, it can be said that confidentiality is the essence of arbitration and is beneficial in several ways.

CONFIDENTIALITY IN INDIA:

Arbitration was recognized as a viable alternative to court litigation, and the Arbitration Act of 1899 was enacted, which laid the foundation for modern arbitration in India. However, this act did not explicitly address confidentiality

 Confidentiality has been frequently emphasized as a significant advantage of alternative dispute resolution methods compared to court adjudication. The real impetus for modernizing arbitration in India came with the economic liberalization policies of the 1990s. As India opened its economy to global markets, there was a growing need to align its arbitration laws with international standards. This led to the enactment of the Arbitration and Conciliation Act of 1996, which was based on the UNCITRAL Model Law on International Commercial Arbitration. The 1996 Act marked a significant advancement by providing a more robust legal framework for arbitration. However, it did not explicitly mandate confidentiality in arbitration proceedings. Despite this, the practice of maintaining confidentiality was generally upheld by arbitrators and parties, drawing from common law principles and international best practices.

Indian courts have also significantly influenced the implementation of confidentiality in arbitration practices. Key judicial rulings have underscored the criticality of confidentiality. For example, in the Mahanagar Telephone Nigam Ltd. v. Canara Bank case (2019), the Supreme Court of India emphasized the importance of preserving confidentiality in arbitration proceedings, stressing that arbitral processes are inherently private.

Some amendments were effective from 9 August 2019 (2019 Amendment), now include a specific provision extending confidentiality to arbitration proceedings. Previously, this provision only applied to conciliation proceedings under section 75 of the ACA.

Justice B N Srikrishna (Srikrishna Committee), in its report to the government of India recommended that: A new provision may be inserted in Part I of the ACA providing for confidentiality of arbitral proceedings unless disclosure is required by legal duty, to protect or enforce a legal right, or to enforce or challenge an award before a court or judicial authority.

However, The Indian Parliament has not completely adopted all the recommendations put forth by the Srikrishna Committee.

Although there are few explicit statutory provisions on confidentiality, judicial interpretations and institutional rules have strengthened the practice, making confidentiality a fundamental aspect of arbitration in India. As India strives to establish itself as a global arbitration hub, maintaining a strong focus on confidentiality will continue to be crucial for enhancing the credibility and effectiveness of its arbitration system.

CONFIDENTIALITY AGREEMENT:

It is an important part of arbitration agreement. A confidentiality agreement restricts the parties from sharing discussions and private information with a third party. It is governed by Indian Contract Act, 1870. The agreement is also known as Non- Disclosure Agreement (NDA). Parties sign this to protect their sensitive information, trade secrets, etc. There are certain important clauses in the agreement that are essential to be added such as:

• Definition of confidential information clause: This clause states what information is considered to be confidential and should not be disclosed. Since, the clause clearly specifies what is viewed as confidential, it eliminates any uncertainties,
• Parties Clause: This clause purports to disclose the names of the parties and their representatives who will have access to confidential information
• Term of confidential clause: Some agreements may require confidentiality for a limited period, while others may necessitate it indefinitely, considering the ongoing importance of keeping such information undisclosed. However, from the perspective of the recipient of confidential information, safeguarding it for an indefinite period can become excessively burdensome. The confidentiality clause is the most crucial aspect of an NDA.
• Arbitration clause: The Non-disclosure Agreement should clearly outline the consequences of a breach by the Recipient in its arbitration clause. If the parties opt for alternative dispute resolution, such as Arbitration, the NDA must specify the arbitration terms, the location of arbitration (seat), and the number of arbitrators to be appointed. The dispute resolution clause in an NDA state that if a dispute arises between the parties, they agree to resolve it through the predetermined alternative dispute resolution method. Typically, this chosen method is arbitration, making the dispute resolution clause also known as the NDA arbitration clause.
• Jurisdiction clause: this clause states that in the event of dispute, which court will exercise its jurisdiction. Regardless of how meticulously a contract is drafted, disputes can still arise during the course of business. Therefore, including a jurisdiction clause is crucial.
• Mandatory and legal disclosure clause: In certain cases, even recipients who handle confidential information carefully and responsibly may be obligated by law to disclose such information to government agencies, administrative bodies, or courts. Therefore, the non-disclosure agreement should include a clause that protects both parties, recognizing that fulfilling legal obligations to disclose does not constitute a violation of the agreement.

 The clauses mentioned above maintains an organised structure for the confidentiality agreement and also reassures the parties to understand their duties and to maintain the information confidential and private as decided in the clause.

EXCEPTIONS TO THE RULE OF CONFIDENTIALITY:

Although confidentiality is the essence of arbitration, there are certain cases where confidentiality may not apply or where the parties are bound to disclose the information. such situations are:

• Consent of parties: Parties may agree to forgo confidentiality or agree to disclose some confidential information. this may be specified earlier in the agreement or may be decided during the arbitration procedure.
• Public Policy Considerations: Sometimes, public policy considerations may overrule confidentiality obligations. This occurs so as to maintain transparency and accountability and in which the information is related to public interest.
• Court Orders or Legal Proceedings: Courts may order the disclosure of information related to arbitration proceedings, particularly when enforcement of arbitral awards or other legal proceedings require it.
• Legal requirements: parties may require to disclose certain information due to the demands of the prevalent laws in the country. It ensures that necessary information is disclosed as the law deems necessary. It is their legal duty.
• It is also important to disclose any information to enforce or challenge an award before a court or judicial authority.
• Termination of the arbitrator
• When any expert is engaged

CHALLENGES TO CONFIDENTIALITY:

Although confidentiality is the cornerstone of arbitration, it comes with its challenges. Various jurisdictions around the world have different laws for confidentiality in arbitration. Therefore, it lacks uniformity in the jurisdiction. Moreover, there is no statutory provision relating to confidentiality, it is considered to be imperative to maintain it. It is not codified in many countries. Also, practical application of the confidentiality agreement, requires cooperation from both the parties and members associated with both the parties. At times, it may become cumbersome to ensure that the information is kept private and there is no threat of the information getting disclosed by anyone.  Even within the arbitration process, maintaining confidentiality can be challenging. Arbitrators, parties, and their representatives must adhere strictly to confidentiality obligations, which can be breached unintentionally through careless handling of documents or communications.

Conclusively, confidentiality is fundamental to arbitration, offering a private venue where parties can resolve disputes confidentially. This article has examined its importance in fostering trust and facilitating effective dispute resolution. Despite its benefits, confidentiality in arbitration encounters challenges such as differing laws across jurisdictions and practical implementation issues.

To address these challenges, arbitration agreements should include clauses defining the scope and duration of confidentiality, specifying dispute resolution methods like arbitration and jurisdiction, and recognizing exceptions where disclosure may be required by law or public policy. These clauses not only safeguard sensitive information but also ensure compliance with legal requirements.

In India, while the Arbitration and Conciliation Act of 1996 and subsequent amendments have modernized arbitration laws, explicit statutory provisions on confidentiality remain limited. Judicial interpretations and institutional rules have been pivotal in reinforcing confidentiality practices in arbitration proceedings.

As India strives to align with global arbitration standards and enhance its arbitration framework, maintaining a strong emphasis on confidentiality will be crucial. This commitment will enhance India’s reputation as a favourable arbitration destination, encouraging more international disputes to be resolved domestically and bolstering the credibility of its arbitration sector.