The who, why and when of confidentiality in Arbitration Proceedings

“If you reveal your secrets to the wind, you should not blame the wind for revealing them to the trees.” ~Kahlil Gilbran

Confidentiality is considered as one of the key reasons why parties choose to go for arbitration for settlement of their disputes as they do not want their disputes to be a topic of public discussion. Considering the detailed documents and information that parties exchange in an arbitration, the idea is to protect the sensitive information, trade secrets, intellectual property which may be subject-matter of an arbitration as its disclosure may result in irreparable loss. For the foregoing reason, arbitration proceedings are kept confidential. But is confidentiality practically possible? What is the legal basis of confidentiality? What is its scope and what are the implications if it is breached by a party? In this article the author will shed light on Section 42-A which was introduced by the amendment of 2019 to the Arbitration and Conciliation Act, 1996.

Background

Section 75 of the Arbitration and Conciliation Act, 1996 states that the parties shall keep confidential all matters relating to the conciliation. However, the said provision is not applicable to arbitration proceedings and applies only to conciliation proceedings. Even though there was no statutory mandate in the 1996 Act, there was an implied duty of confidentiality for various reasons including protection of sensitive information or intellectual property, etc., reputation of parties in public, protection from potential claims in similar matters, no intervention of unrelated parties, etc.

In 2019, for the first time, a provision relating to confidentiality was incorporated in the Act based on the recommendation of Justice B.N. Srikrishna Committee submitted a report and gave certain suggestions for making arbitration more robust in India. The said recommendation was accepted and a provision has now been introduced by Arbitration and Conciliation (Amendment) Act, 2019  that expressly mentions the duty of confidentiality and reads as follows:

42-A. Confidentiality of information.— Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.

It is noteworthy that Section 42-A is a non obstante clause which means that it deprives the parties of their autonomy and this provision supersedes any other law. As per the language of the section, the only exception to confidentiality is when the disclosure of the arbitral record is done for the limited purpose of implementation and enforcement of award.

Section 42-A: Myth or reality?

As per the language of Section 42-A, only the award can be disclosed for the limited purpose of its implementation and enforcement. Surprisingly, the language of the section does not talk about disclosure of the award for the purpose of challenge to the arbitral award under Section 34 of the Act. It is not uncommon for parties to approach the court under Section 29-A for extension of time period for passing of an award. In that case, the relevant record of arbitration is often filed along with the application for extension. Thus, there seems to be a practical problem in implementation of Section 42-A considering the fact that it is a non obstante clause and only permits disclosure of award that too for implementation and enforcement of award. Let us take some other scenarios, where a party is seeking interim measures under Section 9 from the court, a party files an application for termination or substitution of the arbitrator under Sections 14 and 15 or files an appeal under Section 37 against an order of the tribunal, even in these cases the arbitral record is filed before the court, that makes Section 42-A impractical and otiose.

Confidentiality v. Transparency

Often this issue has been a topic of discussion as to whether transparency is more important or confidentiality. It can be argued that the general public has more faith in the court proceedings as there is transparency involved in the process and the court proceedings are accessible to the general public whereas arbitral proceedings are private and are not accessible to third parties. Neither the proceedings nor the award passed by the arbitrator is accessible to any third party. Whereas the judgment of the court is pronounced in open court and available for public. Moreover, transparency ensures fairness and builds the trust of stakeholders in arbitration. Parties often complain that there is no accountability on part of the arbitrator as the proceedings take place in a closed room and as a result, the credibility of arbitrators is often challenged in court. For the said reasons, many people opine that arbitral awards be published as it will cement the faith of the parties in arbitration and at the same time there will be a development of jurisprudence in arbitration. Arbitrators will be careful while passing awards as they would be concerned about their public image and quality of arbitral awards will be maintained. Publication of awards will make it easier for parties to nominate an arbitrator based on his reputation. However exciting the idea of transparency may sound but it cannot be ignored that confidentiality is one of the key features which makes arbitration attractive to parties as a mode of dispute resolution thereby, making it difficult to implement the idea of publication of awards.

Privacy and Confidentiality

Sometimes privacy and confidentiality are used interchangeably when in fact these two concepts are different. Privacy in arbitral proceedings would mean that no third party can enter the arbitration proceedings and cannot witness the same as these proceedings take place in a private set-up in a closed room. In other words, privacy only means that arbitration proceedings cannot be attended by a third party who is not a party to the dispute except the counsels, witnesses and the arbitrator. Confidentiality on the other hand means that the content, documents, information which is adduced during the proceeding and the award are to be kept confidential and cannot be published or disclosed by any party.

Outsiders in the Arbitration Proceedings

Apart from the parties to the arbitration proceedings, there are outsiders who are strangers to the agreement but still sit in the arbitration proceedings e.g. counsels of the parties, witnesses, stenographers/transcribers, tribunal secretary, translators, etc. They are not governed by the arbitration agreement and have access to confidential information produced in the arbitration. Section 42-A fails to address this concern as it remains silent on the duty of these third parties to keep the arbitral record confidential. The language of the section only imposes confidentiality on the parties, arbitrator and the arbitral institution.

International Perspective

The UNCITRAL Model Law is silent on confidentiality. In the absence of any international rules prescribing confidentiality in arbitral proceedings, there has been a difference of opinion between various jurisdictions on the issue whether arbitral proceedings are confidential? Courts in Australia and USA have rejected the idea of an implied duty of confidentiality in arbitration and held that there cannot be a presumption of confidentiality in arbitration. Norway is another jurisdiction which has an express statutory provision which states that there is no duty of confidentiality in arbitration proceedings unless the parties otherwise agree. On the other hand countries like UK and France have recognised the concept of implied confidentiality as there is no express statutory provision regarding confidentiality.

Conclusion

The language of Section 42-A fails to take into consideration the concept of party autonomy which permits parties to decide whether they wish to keep the arbitral proceedings confidential or not. It can be argued that no statutory provision can impose confidentiality on the parties in an arbitration. Further, Section 42-A has been worded in such a way that it does not leave scope for parties to voluntarily consent for disclosure of certain documents and the exceptions in the provision fail to take note of the mandatory legal disclosures. The provision also does not provide the consequences of breach of this provision. The fine print of Section 42-A will render it otiose and as a result, the precious time of the court will be lost in interpreting this loosely-worded provision.

* by Tariq Khan, Principal Associate (Advani & Co.).

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