In this article, Anusha and Nitika Arora[1] of RMLNLU discusses Confidentiality in Arbitration vis-à-vis Arbitration and Conciliation (Amendment) Bill, 2018.
Introduction
The increasing popularity of Arbitration over litigation as a method of effective and efficient dispute resolution can be attributed to many reasons, one of the main being the privacy and confidentiality the method entails.
Though many a times used interchangeably, both the words denote distinct concepts. While privacy connotes to the privilege of the arbitrating parties to hold the arbitration without intrusion of uninvited externals, confidentiality places an obligation on the parties, their representatives, the arbitrator and the people associated with the process to not disclose any information gained from the proceedings, or the award.
The concept of private arbitration is derived from the fact that the parties had agreed to submit any dispute arising only between them to arbitration. While it is generally accepted that privacy is an implicit part of the arbitration process, there exists a divergence of opinion regarding confidentiality in the arbitration proceeding, and specifically, of the award. On one hand, some authorities regard confidentiality as an essential aspect of the arbitration process, increasing the efficiency of dispute resolution, on the other it is deemed as hindering transparency, delivery of justice and establishment of judicial precedent and thus considered an inessential part of the process.
International Stand
Many of the major arbitral institutions recognise the arbitral proceedings to be private. For instance, Article.19.4 of London Court of International Arbitration (LCIA) Rules 2014, Article 26(3) of ICC Rules of Arbitration 2017, Article 28.3 of UNCITRAL Arbitration Rules 2010 all provide for private arbitration proceedings unless otherwise agreed by the parties or ordered by the court. However, most of these rules do not specifically deal with the issue of confidentiality with the exception of Art.30 of LCIA Rules which states that the parties undertake the general principle to keep the award and orders as well as all other material submitted during the proceedings confidential except when disclosure is required as a legal duty, exercise of a legal right or for the award’s enforcement.
In absence of any domestic provision, the English position regarding duty of confidentiality was laid down in Hassneh Insurance Co. of Israel v Mew[2] distinguishing between the duty existing with respect to the documents (transcripts, witness statements, pleadings and documents disclosed in the arbitration) and the reasoned award. The court held that the disclosure of reasoned award is an exception to the duty of confidentiality because it contains the arbitrator’s reasons determining the rights of the parties and may establish a binding precedent. However, the parties still have a duty to keep the other documents confidential despite there not being an express term to that effect in the contract.
Another English case of Ali Shipping v Shipyard Trogir while recognising the implied confidentiality also acknowledged that this duty was not absolute and thus listed four exceptions to it:
- Consent of the parties to disclosure;
- Court’s order or leave for disclosure of documents or evidence;
- When it is reasonably necessary to protect the legitimate interests of the party to the arbitration; and
- Where the interest of justice requires disclosure.
On the other hand, the Australian High Court in Esso Australia Resources Ltd v Plowman held confidentiality to not be an essential characteristic of a private arbitration. The court said that the private nature of arbitral proceeding brought about confidentiality as strangers were not in a position to publish the proceedings or any part of them as they were not present to witness them. Thus, confidentiality cannot be an implied part of the arbitral proceedings in absence of an express provision. The court went on to say that the witnesses in the proceedings were at liberty to disclose the proceedings they had witnessed. The Australian court followed the United States’ lead in United States v. Panhandle Eastern Corp, where the court held that there is no implied confidentiality until and unless the parties agree to it. Sweden also does not recognise implied confidentiality in arbitral proceedings.[3]
Though many countries do not have any provision regarding confidentiality in their national arbitration legislation, New Zealand and Spain come across as exceptions. S.14 of the New Zealand Arbitration Act 1996 provides for the award, documents and information relating to the proceedings to be confidential unless otherwise agreed by the parties. Art.24(2) of the Spanish Arbitration Act 2003 imposes obligation to maintain confidentiality of information acquired relating to and in course of arbitral proceedings.
Indian Stand
India has now sought to join the number of these few countries who address the issue of confidentiality in their domestic arbitration legislation by proposing the Arbitration and Conciliation (Amendment) Bill 2018. The bill was introduced in the Lok Sabha on July 18, 2018 and passed on August 10, 2018, and is now under consideration in the Rajya Sabha.
The Bill is premised on the recommendations of a High-Level Committee chaired by Justice (Retd.) B. N. Srikrishna. The mandate of the Committee was, primarily, to examine measures to strengthen arbitral institutions and suggest ways to improve the efficiency of the arbitral framework in India. Thus, to keep pace with the international arbitration practices and improving value and trust in India’s arbitration procedure, certain amendments are proposed in the said Bill.
The existing legislative framework i.e. the Arbitration & Conciliation Act, 1996 is silent on confidentiality in arbitration, although it contains an express provision governing confidentiality in conciliation proceedings via S.75. Additionally, there has been no case law finding an implied duty of confidentiality, although the Supreme Court of India seems to suggest an implied duty in mediation proceedings.[4] There is no national consensus on the duty of confidentiality or its exceptions. However, but for this amendment bill, the Indian courts would have ideally followed the common law position on the issue.
The Act provides for confidentiality in Conciliation via S.75 which opens with a non-obstante clause. The explanation to S.34(2)(b)(ii) provides that an arbitral award may be set aside by the court, if it finds that the award is in conflict with the public policy of India. An award is in conflict with the public policy of India if it is violative of the requirement of confidentiality as contained in S.75 of the Act. This, by reference, could incorporate the requirement of confidentiality with respect to the ‘arbitral proceedings’ as well, as with respect to the arbitral award, into S.34(2)(b)(ii) mutatis mutandis.[5]
Nevertheless, in an attempt to clear the prevailing sense of confusion around the nature and scope of any implied duty of confidentiality, the Bill proposes introduction of a non-derogable provision, S.42A for maintaining confidentiality of arbitral proceedings. It mandates that the arbitrator, arbitral institution and the parties shall keep confidentiality of all arbitration proceedings. However, this provision instead of bringing coherence on the issue, creates potential for uncertainty.
The Committee had put forth the inclusion of the following exceptions to the duty of confidentiality:
- Disclosure required by a legal duty;
- Disclosure to protect or enforce a legal right;
- To enforce or challenge an award before court or judicial authority.
However, the Bill explicitly, only includes the third aspect as an exception to the provision, i.e. where the disclosure is required for implementation and enforcement of the award. The phrase ‘implementation and enforcement’ of the award includes limited situations. There are multiple other situations where a party may be required to disclose the award or details of the proceedings which are not covered under the exception which has been laid down. For instance, while appointment of arbitrators by court, seeking interim reliefs from court, an application to the court to set aside the award under S.34, appealing against an interim order of the arbitrator etc. Further, there may be statutory mandates requiring a party to disclose details pertaining to the arbitration proceeding such as under the regulations framed by SEBI, under financial reports etc. These are more straight-forward circumstances where it may be argued that the disclosure is permitted, since these are rights of parties expressly granted under law, which the confidentiality provision did not intend to take away.
However, the answer may not be so effortless in other circumstances such as when disclosure is reasonably necessary to protect a legal right as against a third party, for eg when a party may need to disclose the award in order to substantiate a plea of res judicata. Other countries which have express provisions on confidentiality usually provide for broader exceptions such as, where a party is obliged to make a disclosure under law or where the disclosure is made to a professional or other advisors to the party (see, S.2D of the Hong Kong Arbitration Ordinance; S.14C of the New Zealand Arbitration Act 1996).
Conclusion
The 2018 amendment binds the parties to an arbitration agreement to very broad confidentiality obligations with a single exception. Exceptions to the principle such as consent, order of the Court, leave of the court, disclosure when (and to what extent) is necessary for the protection of the legitimate interests of an arbitrating party are not covered in the text. Questions of public interest, eg, where one of the parties is the government, or interests of fair disposal of disputes may also justify waiver of confidentiality obligations.
Since arbitration is a private proceeding, the parties may ventilate their grievances, and discuss their proprietary know-how, their financial circumstances and so forth, without exposure to the public scrutiny and reporting of the media. This makes this amendment very crucial. However, the prospective ambivalence needs to be taken care of before it transpires. Thus, the authors suggest that to address the ambiguities, the said provision ought to be amended to include exceptions to confidentiality obligation ensuring that it is not too widely-termed. The possibility of inclusion of consequences of the breach of such confidentiality may also be considered. Further, it is suggested that such provision of confidentiality should be made derogable i.e. parties should have the ability to define their own limits of confidentiality.
[1] The authors are 4th year B.A.LL.B.(Hons.) students at Dr. Ram Manohar Lohiya National Law University, Lucknow.
[2] [1993] 2 Lloyd’s Rep. 243 (Q.B.).
[3] Bulgarian Foreign Trade Bank v. AI Trade Finance Inc, Case No. T 1881-99 (Swedish Sup. Ct. 27 Oct, 2000).
[4] Michael Hwang S.C, & Jia-Lin Hoe, ‘Confidentiality in Arbitration’ (Vol 2, Issue 1, LCIA India Newsletter 2013).
[5] Indu Malhotra, OP Malhotra’s The Law & Practice of Arbitration & Conciliation, (3rd ed., Thomson Reuters 2014) 1880.
