Importance of Confidentiality in Arbitration – By Bhavy Sharma

Importance of Confidentiality in Arbitration 

Authored by: Bhavy Sharma, 1st year of B.A. LLB (Hons.) from Institute of Law, Nirma University

Introduction

Confidentiality is considered to be one of the key reasons why people go for arbitration over litigation. The judicial system is and has been burdened with a huge backlog of cases. It is not uncommon for cases to be pending for decades in courts, especially complicated and high valued matters. As a result, it is becoming a common practice for parties to include arbitration clauses in large transactions and agreements.

Privacy and Confidentiality are often interchangeably used as counterparts. Privacy in arbitration refers to the fact that third parties and strangers will be excluded and will have no access to arbitration proceedings without the consent of the parties. Confidentiality in arbitration means that without the consent of the parties related to the arbitration, materials disclosed or added during the proceedings and the arbitral award cannot be disclosed by the tribunal, parties, witnesses, or any other individual attending the event. 

The intention of privacy is to avoid any kind of third-party intervention in the arbitral proceedings whereas confidentiality imposes a legal obligation on the parties not to disclose information relating to arbitration proceedings.

Positions regarding confidentiality in arbitration, in different jurisdictions

Most jurisdictions have based their domestic legislations on the UNCITRAL Model Law on International Commercial Arbitration, which has no clear provision for confidentiality. It gives importance to party autonomy, It allows parties to decide whether or not they want their proceedings to stay confidential or not, for this the parties are free to include a clause in their arbitration agreement. With no specified rules prescribed for confidentiality in arbitration proceedings, there is a difference in the laws of different jurisdictions on whether arbitration proceedings should be confidential. 

In the United Kingdom, the courts ensured to keep a balance between the parties regarding confidentiality and the public interest. Without an express clause in the agreement stating otherwise, confidentiality is protected in the proceedings. However, it is made sure that the public interest is not compromised while protecting confidentiality.

In the USA, Australia, and France the right to confidentiality is not implied. There is no inherent obligation of confidentiality until there is no express contract made for it. 

New Zealand is a step ahead in protecting confidentiality than other countries. There is an inherent duty to confidentiality, as well as any court proceedings arising out of the arbitration will also stay confidential. 

Confidentiality in India under the Arbitration and Conciliation Act, 1996

In India, parties have a choice to go for institutional arbitration or ad hoc arbitration. When going for institutional arbitration the parties have to follow the rules prescribed by the institution, whereas if parties go for ad hoc arbitration the parties are at liberty to insert a confidentiality clause in the arbitration agreement.

Confidentiality in arbitration in India is governed by the Arbitration and Conciliation Act, 1996. Provision related to confidentiality was added to the Act based on the recommendation of Justice B.N. Srikrishna Committee, which submitted a report giving certain suggestions to make arbitration in India more vigorous. The recommendation was accepted and Section 42A was introduced by the Arbitration and Conciliation (Amendment) Act, 2019.

Section 42A talks about the confidentiality of information in the arbitration. It obligates the arbitrator, arbitral tribunal, and parties to the arbitration to abide by the principle of confidentiality, except for the award where its disclosure is necessary for the implementation and enforcement of an award. It is a non-obstante clause which means that it supersedes every other law in the act.

Section 42A does not talk about the other people attending the arbitration proceedings like clerks, stenographers, witnesses, etc. This section brings out exceptions to Section 8,9,11,17, etc. of the Arbitration and Conciliation Act, 1996, where the parties approach the court for reliefs under the respective section, third parties might also approach the court to take reference to an ongoing proceeding. Therefore, there is a high probability that the parties seeking court interventions might have to rely on the confidential data of the arbitration proceedings.

In Mahanagar Telephone Nigam Ltd. v. Canara Bank. (Civil Appeal Nos. 6202-­6205 of 2019), the Supreme Court of India allowed non-signatories to claim reference to arbitration proceedings by showing their degree of involvement in the contract.  These references may require disclosure of confidential information from arbitration proceedings.  Thus, the courts in India need to define the extent to which confidential information should be disclosed in court proceedings. They need to strike a balance between the party pleading exception to section 42A and overall requirement to maintain confidentiality. 

Measures to protect confidentiality

Protecting confidentiality in its entirety is very unlikely. However, certain measures could be taken to mitigate instances of disclosure of information and maintain the highest level of confidentiality possible.

The most important measure that could be taken is expressly incorporating a confidentiality clause in the arbitration agreement, specifying the remedies for breach, the extent of confidentiality, security measures to be taken by the parties, and the scope of the confidential information. 

In cases where there are third parties involved, like the witnesses, experts, and any other individuals who may receive confidential information, a confidentiality agreement should be signed by the third parties. The agreement should expressly state the confidential obligation of the third parties to warn them about the contractual liability which may arise for the breach of contract. Parties can also limit the copies of confidential information used in the arbitration to prevent any unwanted disclosure. 

Conclusion

Confidentiality constitutes one of the most important parts of arbitration proceedings. However, it is evident that there are numerous problems in imposing confidentiality obligations.  In the initial stages of the development of laws of arbitration, confidentiality was not given much importance, but now an increasing number of legislations have given centrality to this issue. Although the effort by India to protect confidentiality by introducing Section 42A is laudable, it only creates more problems by keeping its language limited. 

Therefore the bottom line is that unless the confidentiality concerns are addressed properly, it is delivering a promise of confidentiality that is inherently broken. It is important to address these matters carefully to keep the faith in arbitration as an effective means of dispute resolution.

References

  1. https://www.scconline.com/blog/post/2021/01/21/the-who-why-and-when-of-confidentiality-in-arbitration-proceedings/
  2. https://www.europeanjournalofscientificresearch.com/issues/PDF/EJSR_147_3_10.pdf
  3. https://rmlnluseal.home.blog/2019/08/01/confidentiality-vs-transparency-a- debacle-in-the-indian-arbitration-regime/
  4. https://deliverypdf.ssrn.com/delivery.php?ID=5470220830870890701260660050971020240490000
  5. https://blog.ipleaders.in/defining-indefinable-practical-problems- confidentiality-arbitration/
  6. https://www.ijlmh.com/wp-content/uploads/Confidentiality-in-Arbitration.pdf

 

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