This article is written by Malvica Satija, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.com.
The aspect of confidentiality remains a vague and ambiguous issue in the entire Arbitration fraternity. The reason behind such vagueness is due to the involvement of more than one country. When arbitrations are domestic, a uniform law of the country governs them. However, in the case of International Commercial Arbitrations, the laws and welfare of more than one nation is at stake. In times like these, how do you find the middle ground? As a result, a major cloud which wanders over these arbitrations is the challenge of finding an equilibrium.
The term ‘confidentiality’ cannot be defined in a straight-jacket manner. There are no boxes, which when ticked would ensure confidentiality. The meaning of this term may differ from person to person. In all these cases, ‘confidentiality’ must be kept separate from ‘privacy’. Privacy refers to the prohibition imposed on any third party to witness, see and record the proceedings. However, confidentiality in general parlance involves non-disclosure of relevant information to those who aren’t parties to suit. The scope of such confidentiality can be very wide. It can range from non-disclosure of documents and files to even that of the names of the parties.
These two concepts can be competitive or complementary i.e could be present alternatively or cohesively. The reason between the friction between these two concepts is due to absence of a uniform code, which gives rise to conflicts and a bundle of confusion.
Laws governing International Commercial Arbitration
The Arbitration and Conciliation (Amendment) Bill, 2019 was passed by the Rajya Sabha in 2019 with the objective of making India the epicenter of International and Domestic Arbitrations. One of the essential concepts brought into limelight by the Bill was introduction of the concept of ‘confidentiality’ through Section 42A.
As per Section 42A of Arbitration and Conciliation Act, the arbitrator, arbitration institution and parties shall maintain confidentiality of all arbitration agreement except award, where its disclosure becomes imperative for the purpose of its enforcement. Also, the law enumerates an exception that the information may be disclosed for the purpose of enforcing or setting aside the proceedings.
The ICC released updates to its Note to Parties and Arbitral Tribunals on the Conduct of Arbitration under ICC Rules of Arbitration, effective from January, 2019. It further stated that from 1st January, 2019 all awards may be published, based on an opt-out procedure. The opt-out procedure lays down that the party may object to such publication and may want the award to be redacted. In such a case, the same will not happen.
However, India did not incorporate such opt out scheme and failed to conform to international rules governing arbitration. Also, the derivatives of this law can be numerous and is open to interpretation. One side of this law is that Companies will incline towards Arbitration to maintain confidentiality and protect their goodwill. Another flipside of this law may be that the same be repugnant to provisions which makes certain disclosures necessary for listed Companies. The same will just add to the pile of confusion circling the concept of confidentiality.
Another law, which governs International Commercial Arbitration, is the UNCITRAL Model Law. However, this law does not impose the aspect of confidentiality on parties and advocates the concept of ‘Party Autonomy’ which enumerates that the parties are free to decide the extent of confidentiality desired. Furthermore, it lays down that the parties may publish the award as per the consent of the parties.
Does Absolute Confidentiality exist?
The term ‘absolute’ carries a lot of weight on its shoulders. Whenever this term is added to any concept, it implies no room for errors. However, this goal is difficult to achieve in Confidentiality as there are many loopholes present in it. One of them being the number of parties involved in it. Usually, in an arbitration proceeding, along with the parties, there are witnesses, officials, translators, stenographers who may know essential information but may not be bound by the rules pertaining to confidentiality. These parties have ‘access’ to confidential information but may not be aware that the same needs to kept private.
Also, all rules which talk about confidentiality come with their own share of exceptions. For instance, under Section 42A of Arbitration and Conciliation Act, 1996, the parties may disclose the information for setting aside or enforcing the proceedings.
Furthermore, the Court Of Appeal in Shipyard Trogir held that the confidentiality may be subject to several other exceptions such as orders of the court, consensus of the parties, in the interest of general public and situations of necessity. When such exceptions exist, the concept of absolute confidentiality seems like a dream.
Another cloud, which hovers over the idea of absolute confidentiality, is the extent and applicability of the same-
- If third parties, who have access to sensitive and confidential information, but are not parties to suit are governed by confidentiality rules.
- What information comes under the umbrella of ‘confidentiality’.
The dream of absolute confidentiality looks like one with a number of challenges. Even if the Judiciary overcame these challenges, the concept in itself doesn’t seem to have much practical reliability and applicability.
Implied Confidentiality is a concept which propagates that the fact that the information is to be kept confidential is automatically present and doesn’t need to be expressly stated. It acknowledges the inherent presence of such a law which doesn’t need any express or direct mention. Countries like US and Australia recognize Implied Confidentiality in all of their arbitration proceedings.
Exceptions to Confidentiality
As discussed above, the concept of absolute confidentiality looks like an un-achievable dream as it doesn’t bear the characteristic of applicability and validity. Absolute rules are difficult to implement and execute and attract unwanted confusion and complication. As a result, the rule of confidentiality is subject to some reasonable exceptions as enumerated below-
Orders of the Court
The court may order disclosure of confidential information on a case by case basis. This may be due to several reasons such as legal requirements, imperative to understand the fact-in issue etc. In case the court orders the same, the parties are bound to comply with them or will attract contempt.
When the interest of the general public lies in an arbitration proceeding, then keeping the information confidential is not feasible. A company may have a number of stakeholders who’s vested interest may lie in the fate of the proceedings. In such a case, confidential proceedings will not prevail at the cost of the rights of the stakeholders.
Consent of the Parties
The law may be kept at bay when the parties don’t object to disclosure of information. The parties may have several reasons for arriving at this agreement. For instance, persons owning majority of shares of a company may be furnished with the relevant information.
The law of necessity dictates that the normal rule may be kept at bay in light of reasonable necessity. No straight-jacket rule can be formulated for the same but it depends from case to case.
Problem with Jurisdiction
One of the main problems associated with International Commercial Arbitrations is the presence of different nations. When more than one country comes into play, the laws of all need to be kept in perspective which gives rise to difficulty in execution. For instance, in an arbitration matter between a country in India and US, laws in India may make confidentiality compulsory, and laws in US may require disclosure. Generally, the answer of these questions depends on-
- Seat of the Arbitration Proceedings
- Arbitral Rules applicable
The following list enumerates the diversity of rules pertaining to confidentiality-
- Singapore International Arbitration Centre provides for presence of implied confidentiality in its proceedings.
- Philippines Alternative Resolution Act, 2004 doesn’t expressly impose confidentiality and encourages autonomy among the parties.
- Hong Kong Arbitration Ordinance specifically calls for compulsory confidentiality in proceedings from the year 2011.
- Section 42A of the Arbitration and Conciliation Act, 1996 lays down confidentiality of information with the exception of enforcement of proceedings.
- US and Australia do not support the concept of Implied Confidentiality.
All countries are different in light of their laws and regulations. Their fundamental law systems also vary considerably. Some may follow common law system, others may be propagators of civil law system. In all these situations, finding a common ground becomes difficult but imperative.
Uniform Code pertaining to confidentiality is the light at the end of the tunnel. When parties enter into an arbitration agreement, they must clarify and mention what laws they are to be governed with. Also, an international convention must be formulated which lays down common rules governing International Commercial Arbitrations. Countries ratifying to this convention shall be bound by those rules which shall attract less confusion.
International Commercial Disputes are not going anywhere and are bound to happen, its time we strive at making them less complicated and more concentrated on party welfare.
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