The Confidentiality in Arbitration and the Push for Greater Transparency

Introduction

The importance of confidentiality in any commercial arbitration has been an accepted norm. Traditionally, confidentiality was seen as a critical strength. However, recent trends suggest transparency is crucial for arbitration to be a reliable and efficient dispute resolution method. The central question is whether confidentiality is essential for all commercial arbitration or if the growing need for transparency can be accommodated without harming arbitration’s popularity as the preferred alternative dispute resolution method.

In India, the confidentiality in arbitration proceedings got statutory recognition pursuant to the report given by Justice Srikrishna in the year 2017¹. The Committee noticed that the Arbitration and Conciliation Act, 1996 did not contain any provision expressly providing for confidentiality of arbitral proceedings. The report noticed divergence in how confidentiality of arbitral proceedings is treated in different jurisdictions. At one end is Hong Kong, which provides for protection of confidentiality in arbitral proceedings as well as court proceedings related to such arbitral proceedings. On the other hand, in the United Kingdom and Singapore, the law is completely silent on the matter. However, English courts consider arbitration to be a private means of dispute resolution and consider an obligation of confidentiality to be implied in the arbitration agreement between the parties. Singapore also recognises the existence of an implied duty of confidentiality in arbitration proceedings. Thus, it was suggested to insert a provision providing for confidentiality of arbitral proceedings in the Act itself giving rise to insertion of Section 42-A on the Arbitration and Conciliation Act, 1996, by the Arbitration and Conciliation (Amendment) Act, 2019, w.e.f. 30-8-2019. This section mandates the confidentiality of arbitral proceedings, with exceptions.

International instruments

Article 7 of the United Nations Commission on International Trade Law (Uncitral), Rules on Transparency in Treaty-based Investor-State Arbitration (2013)² talks about the exceptions to the rule of transparency in arbitrations. It states that the confidential or protected information, as defined in Para 2 and as identified pursuant to the arrangements referred to in Paras 3 and 4, shall not be made available to the public pursuant to Articles 2 to 6.

The confidential or protected information consists of confidential business information; information that is protected against being made available to the public under the treaty; Information that is protected against being made available to the public, in the case of the information of the respondent State, under the law of the respondent State, and in the case of other information, under any law or rules decided by the Arbitral Tribunal to be applicable to the disclosure of such information; or information, the disclosure of which would impede law enforcement. The Arbitral Tribunal, after consultation with the disputing parties, shall make arrangements to prevent any confidential or protected information from being made available to the public, including by putting in place, time-limits in which a disputing party, non-disputing party to the treaty, or third person shall give notice that it seeks protection for such information in documents; procedures for the prompt designation and redaction of the particular confidential or protected information in such documents; and procedures for holding hearings in private to the extent required by Article 6, Para 2. Any determination as to whether the information is confidential or protected shall be made by the Arbitral Tribunal after consultation with the disputing parties.

Thus, the said Transparency Rules acknowledge that certain types of information should not be made public after consulting with both parties involved in the dispute. This includes information believed to be confidential or protected by the arbitration panel. For instance, the information not to be disclosed includes sensitive business information, details that could hinder law enforcement, or information protected by treaties, national laws, or relevant regulations. The Rules allow for solutions like redacting sensitive portions of documents or holding private hearings when discussing such information. Additionally, the Rules aim to prevent the release of information that could compromise the arbitration process itself, such as details that might obstruct evidence collection or intimidate participants. Finally, they respect a State’s right to withhold information considered critical to their national security.

The World Bank’s International Centre for Settlement of Investment Disputes (Icsid)³ offers a nuanced approach to confidentiality and transparency in Icsid Convention Arbitration. The level of confidentiality or transparency in a proceeding depends on the parties’ agreement or any applicable provisions in the instrument of consent. In the absence, the Icsid Rules on Transparency will apply in a proceeding. The treaty, contract or law having the parties’ consent to arbitration may include specific provisions on confidentiality and transparency applicable to the arbitration proceedings. The Rules on Transparency in Treaty-based Investor-State Arbitration (Uncitral Rules on Transparency) may apply in an Icsid case by virtue of the State parties to the applicable investment treaty having ratified the Mauritius Convention, or by agreement of the disputing parties in the case.

These Rules allow parties to designate documents as confidential while also enabling the redaction of sensitive portions before public release. The article emphasises that arbitrators themselves are bound by a duty of confidentiality, ensuring that information obtained during the proceedings remains private. This approach by Icsid highlights the possibility of balancing both confidentiality needs and calls for increased transparency in international arbitration.

The Tribunal has the discretion to order the confidentiality and/or transparency regime that it finds appropriate, provided that: (a) it treats the parties with equality; and (b) it allows each party a full opportunity to present its case.⁴

Precedents

In Rebecca Silvernail v. TCMS⁵ ad hoc arbitration case in the US, the Tribunal recognised the importance of the agreement between the parties in maintaining the confidentiality of all the documents and proceedings of the case. The parties expressly agreed that the terms and conditions of this agreement, and all matters relating to the dispute not otherwise contained in any public records, shall be kept strictly confidential and shall not be revealed or divulged to any third persons or entities except as necessary for tax purposes and/or necessary and legitimate purposes.

The Tribunals have also, at times, given parties a chance to develop a protocol on transparency and confidentiality, with consensus to release that as a procedural order binding on all the parties involved in the dispute.⁶

In the absence of an agreement between the disputing parties, matters of procedure are within the powers of the Tribunal. Undoubtedly, issues of transparency and confidentiality are matters of procedure. The Tribunal, therefore, has the power to determine whether to allow the disclosure of the record with respect to the claims brought by the claimant.⁷

There is often a case where parties cannot produce all the documents required by either the Tribunal or the other party. In such a case, a confidentiality log is made under the Redfern Schedule. The parties are open to providing a redacted version of the documents which contain such confidential information. The Tribunals have maintained that all persons receiving material in the proceedings containing confidential information shall be bound by their order to keep such information confidential. Each disputing party is usually obligated to notify all persons receiving such material of the obligations and ensure that the persons protect the confidential information.⁸ In Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania⁹, the Tribunal has stated that disclosing some documents should not be allowed in principle, since it would jeopardise the procedural integrity of the arbitral process.

The issue of transparency regarding who finances a case has been highlighted in recent decisions with respect to third-party funding. In EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic¹⁰, the Tribunal required the company to bring the claim to reveal its funding source to avoid conflicts of interest with the arbitrators. However, in other cases, like Muhammet Çap & Sehil In_aat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan¹¹ and South American Silver Ltd. v. Bolivia¹², the Tribunals demanded even more information, including the details of the funding agreement. These tribunals emphasised the importance of ensuring a fair and impartial process for all parties involved.

Analysis

The debate between confidentiality and transparency in arbitration revolves around the need to protect sensitive information while ensuring accountability and fairness. The framework provided by international instruments and domestic laws helps in navigating this balance. International instruments illustrate the global efforts to strike a balance between confidentiality and transparency. These rules acknowledge the necessity of protecting certain information, such as confidential business data and details sensitive to law enforcement.

At the same time, they promote transparency by allowing public access to non-sensitive information and mandating procedural openness. For instance, solutions like redacting sensitive portions of documents and holding private hearings ensure that confidentiality is maintained without compromising the transparency essential for accountability. On the domestic front, legislation often underscores the importance of confidentiality in arbitral proceedings, with exceptions for necessary disclosures during the enforcement of awards. Judicial interpretations further refine the application of these provisions, ensuring that confidentiality is not misused to protect defamatory statements or obstruct justice.

Balancing confidentiality and transparency in arbitration is crucial for maintaining the integrity and efficiency of the dispute resolution process. Confidentiality protects sensitive information and encourages frank discussions, while transparency promotes accountability, fairness, and public trust in the arbitration system.

Conclusion

The analysis reveals a growing emphasis on balancing confidentiality and transparency in international commercial arbitration. International instruments like the Uncitral Transparency Rules and the Icsid Convention Arbitration Rules offer frameworks for achieving this balance, while domestic laws like India’s Arbitration and Conciliation Act provide a baseline for confidentiality with specific exceptions. Precedents illustrate the practical application of these frameworks and legal principles, showing the importance of party agreements, tribunal discretion, and flexibility in managing confidentiality and transparency concerns.

At the heart of the confidentiality versus transparency debate are the competing interests of privacy and public accountability. Confidentiality protects parties’ sensitive information, commercial interests, and privacy, making arbitration an attractive option for resolving disputes discreetly. Accordingly, parties to commercial arbitration agreements should proactively address confidentiality and transparency expectations in their clauses. Arbitral institutions can offer guidance and resources to parties on drafting effective confidentiality provisions. Lawmakers can consider legal frameworks that promote a nuanced approach to confidentiality and transparency, allowing for flexibility based on the specific circumstances of each arbitration. By adopting these recommendations, the arbitration community can continue to evolve towards an efficient and fair system, fostering trust and confidence in the process.