The Evolution of Confidentiality in Arbitration: Legal Frameworks and Practical Challenges

Introduction

Arbitration is a formal process where disputing parties agree to submit their conflict to a neutral third party, known as an arbitrator. The arbitrator listens to both sides, examines evidence, and makes a binding decision. In India, arbitrators are typically experienced legal professionals who bring their expertise to ensure a fair and just resolution. This method is often used in commercial disputes where parties seek a definitive ruling without going through the lengthy court process.

Confidentiality in Arbitration

Confidentiality in arbitration is the duty of the parties and those assisting in a case to refrain from revealing the matter in issue, the fact of the arbitration, and the arbitration proceedings to the third party. This includes parties in the case, their lawyers and other representatives and the arbitrators. Indeed, there is a reason parties will seek their information to remain confidential, such information could embarrass the parties, affect their reputation negatively or put them in a disadvantageous position within their competitive markets.

Importance of Confidentiality in Arbitration

Confidentiality plays an important role for it preserves the information, the parties are free to share during the arbitration process, and contributes to individuals’ and companies’ image safeguarding. It is useful to keep business relations, to adhere to legal and contractual requirements and, thus to protect arbitration as such against any external interferences. Further, confidentiality also prevents the setting of unnecessary standards hence the ability of the parties to solve problems independently of certain circumstances which otherwise could be deemed social norms. In all, it creates a secure and personal environment for proper solutions to be reached by all the affected parties.

Legal framework

Sub-section (4) of Section 75 of the Arbitration and Conciliation Act also provides that all

matters which are connected with the conciliation shall be treated confidential. However, the said provision does not apply to arbitration and applies only to conciliation. Thus, although the requirement of confidentiality was not a statutory requirement under the 1996 Act, it arose for many reasons, including because of the protection of information which would be deemed to be of a highly sensitive nature, or where the matter has involved intellectual property, or reputation of the parties, enormously at stake in public, protection from claims in similar matters, no part of which would want an unrelated third party to be involved.

In 2019, for the first time, a provision relating to confidentiality was incorporated in the Act based on the recommendation of Justice B.N. Shree Krishna 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. Section 42A of the Arbitration and Conciliation Act 1996, provides that every commercial arbitration proceeding and every other arbitration to the extent that it is related to a commercial proceeding is confidential and the arbitrator, the arbitration organization or institution and the parties to the arbitration agreement shall not disclose any information about the arbitration proceedings unless and until the award is made. The confidentiality of the award is expected in the sense that it can only be published when its implementation and enforcement requires it.

Critics

Section 42A has been criticized for its vague scope, which can lead to inconsistent

application. There are concerns that confidentiality might be misused to hide unethical behaviour and could hinder the disclosure of important public issues. Additionally, it may complicate appeals and judicial reviews and faces challenges in enforcement across different jurisdictions. These criticisms highlight the need to balance confidentiality with transparency and accountability.

Confidentiality vs Transparency

In arbitration, the parties avoid publicity and share all the essential information, which may be detrimental to their businesses if disclosed to the public. This assists in preserving privacy and cutting on the reputational risks for the parties involved.

But the transparency procedure brings the fairness of the process in terms of its review and accountability, regardless of hidden intentions in the background which is important for public credibility. Balancing these principles is key: whereas, confidentiality is helpful in protecting individual and business’ information, transparency is useful as it makes the process more procedurally appropriate and open for review in the event for a misdeed or mistake.

Confidentiality obligations

In arbitration, confidentiality is paramount and applies to the arbitral institution itself, the arbitrators, and parties. The latter would, therefore, count as the first category.

Arbitrators: They must consider confidential all issues relating to the proceedings, including discussions, evidence, and the final award. They shall not divulge any information acquired in the process and must also take care to avoid potential conflicts of interest that could impact their ability to uphold confidentiality.
Parties: Each party must keep confidential all information and documents disclosed during the course of arbitral proceedings. The information shall not be used for any purpose outside the arbitration, and the parties shall take care not to make it public or disclose it to any unauthorized third party.
Arbitration Institution: The institution that holds the arbitration, such as the ICC or LCIA, shall ensure that the confidentiality stipulations are effectively applied and all administrative procedures are conducted in confidentiality. It may also have the power to adjudicate any disputes related to confidentiality breaches.

Exceptions to confidentiality in Arbitration

In general, confidentiality is maintained in arbitration; however, there could be various

exceptions. This would include exigencies of the law, such as the execution of a court order or compliance with regulatory provisions. For example, if a party is subject to a subpoena or any other lawful obligations, confidential information may have to be disclosed. Further, if it is necessary to enforce or challenge an arbitral award in court, details of the arbitration and the award may be disclosed for the purpose of supporting the enforcement procedure or contesting the award.

Exceptions also occur in matters of overriding public interest. If the subject matter of the

arbitration consists of fraud or other illegalities, confidential information may be required to be disclosed to protect the public or prevent serious wrongdoing. Further, the parties in an arbitration proceeding may consent to the release of confidentiality either by express or implied agreement, and hence, some information may be disclosed by mutual consent.

The exceptions, taken together, attempt to balance the requirement of confidentiality with the demands for transparency, compliance with the law, and other broad societal interests. They make sure that although the process of arbitration remains private and secure, it still is able to give due regard to legal and ethical concerns arising during or after the process.

Challenges to maintain Confidentiality in Arbitration

Firstly, technological growth has led to the increased possibility of exposure of large amounts of data in the unauthorized usage. It also reveals that communication through computers and documents transport through electronic means can lead to leakage of information where there is no adequate security. Secondly, because arbitration is a global process with various parties and institutions in different places, there might be differences in the levels of confidentiality that are expected, thus raising issues in the enforcement of private protections.

Furthermore, there is the breach by disclosures during enforcement or where there is a setting aside application for the arbitration award because when going to court, certain information needs to be made public. Third-parties for instance, the experts or witnesses involved in the case may also be a potential threat if not contracted to secrecy. Last, certain confidentiality mismatch between the parties or ambiguous provisions included in arbitration regulations can become the reason for controversy concerning what information should not be disclosed and when it can be disclosed.

Overcoming these challenges requires the use of strict security measures that include prevention of access to the arbitration process by unauthorized persons, use of properly drafted confidentiality agreements which are well understood by all the participants in the arbitration process, and strict compliance with provisions on confidentiality throughout the arbitration process.

Case studies on breach of confidentiality

What follows is a case law in which a breach of confidentiality has been taken into account:

Suisse Atlantique Société d’Armement SA v. NV Rotterdamsche Lloyd

Facts:

It was an arbitration dispute between Suisse Atlantique and NV Rotterdamsche Lloyd in respect of a dispute concerning a charter party. The same was held under the aegis of the International Chamber of Commerce. The arbitration agreement between the parties provided for confidentiality.

Issue:

For instance, there was a breach of the duty to confidentiality when one of the parties, NV Rotterdamsche Lloyd, published the details of the arbitration process and the award to third parties, including the media houses. The publication took place while the final award was yet to be communicated formally and caused a serious legal and reputational impact on Suisse Atlantique.

Judgment:

Therefore, there was a breach of confidentiality, which called for action through the legal system. Suisse Atlantique sought remedies due to the unauthorized disclosure of sensitive information in its case. It developed the use of robust confidentiality agreements and the enforcement of privacy protection in arbitral procedures. The case before the arbitral tribunal and the Court clearly showed further how breaches may affect the integrity of the arbitration process while stressing the necessity of effective measures for the protection of confidential information.

Significance:

This case pretty much highlighted the possible risks and consequences because of confidentiality breaches in proceedings for arbitration. More significantly, it strongly served as a statement on the importance of adherence to agreements on confidentiality and creating controls over relevantly sensitive information during the behaviour of an arbitration.

The Republic of India v Deutsche Telekom AG [2023] SGCA (I) 4.

Facts:

The case arose out of an arbitration award under which Deutsche Telekom AG (Deutsche Telekom) was awarded damages against the Republic of India, relating to a dispute over a telecommunications contract. That arbitration was conducted under the rules of ICSID.

Issue:

It is in this regard that India challenged the enforcement of the arbitral award, citing a number of concerns on breaches of confidentiality. In particular, India contented that Deutsche Telekom had improperly disclosed confidential information relating to the arbitration proceedings to the public and other parties outside the arbitration process.

Decision:

The Singapore Court of Appeal reversed the decision and held that the Disclosures did not constitute a breach of the confidentiality obligations pursuant to the Arbitration Rules. It was, however, underlined by the court that the basic principle of confidentiality as an area in arbitration may clash with other relevant concerns: first, with the need to ensure transparency in enforcement proceedings; second, with the preservation of the integrity of the arbitral process.

Significance:

The case thus illustrates how, in the area of international arbitration, there may be problems with confidentiality relating to enforcement and mandatory public disclosure. It is also hinted at that proper confidentiality provisions are required to be drafted and applied, although the legal and procedural provisions of the states can be very diverse.

To Ensure confidentiality in Arbitration

In order to achieve effective protection of confidentiality in arbitration, one must have a thorough arbitration agreement that points out what should be confidential, what the obligations of all the parties in the arbitration case are. Encryption and safe methods of communication such as those involving safe email and safe online forums must be applied to avoid compromise of the information. Any sensitive information must not be made available to anyone, and all the members including the arbitrators, experts, and witnesses should sign nondisclosure agreements.

Sophisticated measures should be taken for managing, storing and disposing confidential documents hence proper storage equipment and best methods of discarding the documents must be observed. Confidentiality and how it should be handled are additional components that need to be taught to all participants engaged in the training process. There is a need to have ways of enforcing the confidentiality aspect to ensure the integrity of the process is upheld as well as observing compliance with these requirements. Also, choosing arbitration institutions with strict

rules on the protection of confidentiality addresses the arbitration agreement’s demands. All of these procedures are beneficial in ensuring that all the private information is safeguarded and that the arbitration process is not distorted.

Conclusion

Confidentiality is vital in arbitration, safeguarding sensitive information and

enhancing the process’s appeal by offering privacy and protecting business interests. Despite challenges in enforcement and scope, robust confidentiality provisions are crucial for maintaining trust and ensuring effective dispute resolution in an evolving arbitration landscape.

Reference