Introduction

One of the many reasons why parties prefer arbitration to litigation is its distinct feature of confidentiality which is possible only because arbitration is limited to adjudicating rights in personam over rights in rem. Jurisprudence believes that “a man’s home is his castle” and hence what is private ought to have some sort of privacy in the legal realm as well. Be that as it may, international developments which base their arguments on credibility and public morality highlight issues that contradict the notion.^[1]

Before 2019, confidentiality was confined to conciliation under Section 75 of the Arbitration & Conciliation Act, 1996 (hereinafter, also referred to as ‘the Act’).^[2] However, due to the well-established premise that confidentiality is at the heart of arbitration, a need was felt to legally enforce it. In 2017, a High-Level Committee (hereinafter, ‘HLC’) chaired by Justice B.N Srikrishna recommended introducing a distinct confidentiality clause within the Act.^[3] The recommendation was acted upon in 2019 with the addition of Section 42A (hereinafter, also referred to as ‘the Section’)^[4] While initially hailed to be a commendable legislative measure in finally resolving the long-standing problem of transparency and privacy in arbitral proceedings, it later contributed to the quandary by neither incorporating the HLC recommendations as they were, nor obtaining ideas from the international perspective on the same.

With the aim to avoid any future complications and to provide a window for transparency advocating disputants, the addition of a mandatory confidentiality clause should have at least been supported by certain exceptions to the rule. The Section in its present form lacks the capacity to settle the questions arising out of the confidentiality and transparency duality. This article attempts at analysing the pitfalls of Section 42A and suggesting possible solutions to settle the confidentiality-transparency debate.

The Confidentiality Argument

In the popular case of Esso vs. Plowman,^[5] confidentiality in arbitral matters was defined as being limited to “information relating to the content of the proceedings, evidence, and documents, transcripts of the hearings or the award”, which is starkly different from its general meaning wherein it is often confused with the privacy of proceedings.

The confidentiality of arbitration is one of the principal reasons why corporates prefer it to litigation.^[6] Businesses strive to win clients’ trust and contentment in addition to providing goods or services. As a result, arbitration becomes the best alternative to litigation since it protects their trade secrets and intellectual property while also preventing their actions or misjudgements from affecting their market standing thereby dodging any potential damage to their business model.^[7] Moreover, as arbitration is a matter in personam,^[8] the uniqueness of its awards becomes its centrepiece. Confidentiality prevents prejudices based on past cases which had identical grounds. It negates the apprehension of having an arbitrator who is not thoroughly examining the matter simply because the prior order’s award persuaded him.^[9] It also eliminates the possibility of a third-party interfering with the proceedings by injecting prejudice and misunderstanding.^[10]

While the UNCITRAL Model Law^[11] does not expressly talk about confidentiality, the legal framework of confidentiality in international sphere is majorly divided into three types:-

• Implied Confidentiality as found in the UK arbitral regime^[12] and in the Singapore arbitral regime where both express and implied confidentiality are present.^[13]
• No imposition of confidentiality as in the case of Sweden and the USA.
• Confidentiality as a rule of law; the Arbitration and Conciliation (Amendment) Act of 2019 puts India at par with Hong Kong, France and New Zealand which have express provisions mandating confidentiality in arbitration.^[14]

Section 42A of the Act provides that parties, arbitrators and the arbitral institution must retain confidentiality unless “necessary for implementation and enforcement of award”. This phrase may have very wide connotations, especially with more parties contesting confidentiality on grounds of “necessity”, the scope of which has nowhere been defined. This would not only delay the arbitral proceedings but also defeat its entire purpose. The provision also does not adequately incorporate the High-Level Committee Report exceptions to the rule. The HLC Report suggested that disclosure could be permitted in cases where there might be post-award litigation challenging the award or where such disclosure is a legal liability of either party. The clause fails to provide any clarity for the situations that would be exempted from the confidentiality rule by entirely doing away with the ‘legal duty’ exception.

While mandating confidentiality, the legislature ought to have included all possible situations where disclosing information related to the proceedings be permitted in good faith, keeping party interests in mind. Further, the absence of well-defined exceptions to Section 42A leaves it upon the discretion of the courts to decide the procedure with regards to any disclosure. Consequently, rather than putting an end to the discourse, the Section added to the uncertainty.

A survey conducted in 2018 by the Queen Mary University of London revealed that flexible opt-out clauses with respect to confidentiality in arbitrations were overwhelmingly supported by 74% of the respondents. Additionally, 30% of the respondents believed that there could be no confidentiality without a clause stating the same in the arbitration agreement.^[15] The authors believe that this sentiment is likely to be reflected by the stakeholders in India too.

Therefore, the pertinent question with regards to India adopting a mandatory confidentiality provision is whether there was an impending requirement for the same especially when a less restrictive ‘opt-in’ provision was a more feasible and popular option in the arbitration community.

The Transparency Argument

India being increasingly enmeshed in the global supply chain; issues of trade and industry have a greater impact on it than earlier. More accountability and equitable processes are demanded by proponents of transparency in arbitral proceedings worldwide.^[16] Transparency is also believed to be aiding in the administration of justice.^[17] The suggestion that the masses would have no benefit arising out of such transparency would be fallacious. In cases involving environment, labour rights, or compromised standards of products manufactured, transparency in proceedings and awards is advocated to build public faith in arbitration. In such cases, transparency does provide benefits to all.^[18] As a result, when analysing the duality, one should not only evaluate the form of arbitration but also the potential rewards.

Arbitration, despite its popularity, is still relatively newer and less opted-for mechanism to resolve disputes expeditiously. Transparency improves its efficiency and eases the proceedings by enhancing the predictability of awards via access to previous similar awards, analogous to the precedential value a previous judgement has in litigation, thereby establishing arbitral jurisprudence for the future.^[19] Though past awards may not have the same weight as precedents, they might nevertheless have persuasive value.^[20]

Another aspect of transparency is its potential role in the appointment of arbitrators and the establishment of arbitral institutions. It would be simple to appoint or remove arbitrators from certain cases or institutions if the credibility and competence of an arbitrator could be determined. Parties may even have a lot of say in selecting the best arbitrator for their case. The ICC introduced new guidelines in 2021 to increase the openness of arbitration, including the disclosure of third-party funding and arbitral appointments.^[21] The global tilt is in favour of increasing arbitration’s transparency and transforming it from a secondary mechanism of dispute settlement to the most popular option.

If corporate interests and market trends are ignored, transparency may be the way ahead. However, the previously mentioned necessity of maintaining confidentiality and the protection of business interests cannot be overlooked. Corporate interests include the protection of their reputation and trade secrets, both of which are severely harmed by transparency. That leads us back to the beginning – is there a way out?

Settling the debate

The Parliament’s effort to inculcate the Srikrishna Committee recommendations in Section 42A is praiseworthy but owing to its ambiguity, it has failed to settle the conundrum. Though the provision’s jurisprudence is yet to evolve owing to its infancy, it appears incompatible with the function it was designed to serve. Furthermore, it entirely disregards the parties’ autonomy in deciding whether or not to keep their affairs private. It is not only restrictive but also vague insofar that it excludes all those besides the parties and the arbitrator(s) who may be present during the proceedings, e.g., the tribunal secretaries, the panel of experts etc.

Though the Act has been drafted on the lines of the UNCITRAL Model Law, the legislature should perhaps have also considered the laws of other jurisdictions whose enactments are also based on the Model Law. With regards to this, Section 14(c) of the New Zealand Arbitration Act is worth mentioning.^[22] The Section being very clear in its language provides for reasonable exceptions as per which the information of the proceedings may be disclosed.^[23] These include disclosure to experts, disclosure to ensure equal and full opportunity of hearing to both parties, disclosure in cases of third-party rights and in cases where pre-litigation formalities are to be undergone. India’s Arbitration and Conciliation Act contains no provision analogous to Section 14(c) of the New Zealand Arbitration Act, except for the vague phrase in Section 42A i.e. “where its disclosure is necessary for implementation and enforcement of award”. This creates a problem for the Indian Arbitration community since there is doubt as to whether the said Section in its current form is capable of fulfilling its responsibility without creating a host of new problems. Furthermore, the effect of this provision goes against the legislative intent of all recent amendments, which are aimed at minimising the scope for ambiguity.

Among improvement of business society through transparency and preservation of corporate interests through confidentiality, no singular notion can be chosen as the absolute norm but carving out a universal regulation on the transparency-confidentiality dilemma would be a monumental effort. Besides, arbitrations are used in a wide range of situations nowadays and a one-size-fits-all approach will not be feasible anyway. Moreover, it is a fallacy that complete confidentiality can be achieved in arbitral procedures. When a party challenges an arbitral ruling in court, the entire idea of complete confidentiality is thrown out. ^[24]

Therefore, a balancing approach, similar to the harmonious construction doctrine of legislation, is the need of the hour as the relationship between transparency and confidentiality should never fully shift in one direction. In each case, the facts including the terms of agreement and the intentions of the parties, the merits, and any other prevailing conditions that may warrant scrutiny must be considered in order to ascertain what degree of the transparency-confidentiality dynamic is best suited.  As a result, the two conceptions shall be harmonised.

Owing to this, ideas and practices such as thoughtful inclusion of confidentiality clauses, passing of arbitral awards while deliberately withholding confidential information, and selective publishing of the award or its procedural history will start to emerge. Eventually, this will leave a mark on the business industry and the overall arbitration regime as well.

If India is to truly become a pro-arbitration country, the government must reconsider the mandatory clause and replace it with an opt-in approach. On the other hand, until the position is fixed, arbitral tribunals and courts in India can use international jurisprudence and the causus omissus rule to adjudicate disputes, taking into account the facts and circumstances of each case to balance the confidentiality-transparency conflict.

References

[1] BM Cremades, The Principle of Confidentiality in Arbitration: A Necessary Crisis, Vol. 23 No. 3 Journal of Arbitration Studies, 25, 25-38 (2013).

[2] The Arbitration and Conciliation Act, 1996, § 75, No. 26, Acts of Parliament, 1996.

[3] Srikrishna, B., 2017, High-Level Committee Report to Review the Institutionalisation of Arbitration Mechanism in India, [online] Department of Legal Affairs, Available at: https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf .

[4] The Arbitration and Conciliation Act, 1996, § 42A, No. 26, Acts of Parliament, 1996.

[5] Esso/BHP vs. Plowman, Case No. 7371 of 1992 (Sup. Ct. of Victoria).

[6] Supra at 1.

[7] Ibid.

[8] Ralf Michaels, International Arbitration as Private and Public Good, Series no. 2017-57, Duke Law School Public Law & Legal Theory, (2017), Available at: https://ssrn.com/abstract=3019557.

[9] Tariq Khan, The who, why and when of confidentiality in Arbitration Proceedings, SCC OnLine Blog (2021), https://www.scconline.com/blog/post/2021/01/21/the-who-why-and-when-of-confidentiality-in-arbitration-proceedings/.

[10] Mahashweta Muthusubbarayan, Sanitizing Arbitral Awards: Transparency v. Confidentiality, RMNLU Law Review Blog (2018), https://rmlnlulawreview.com/2018/02/01/sanitizing-arbitral-awards-transparency-v-confidentiality-2/.

[11] UNCITRAL Model Law on International Commercial Arbitration, (1985).

[12] Dolling-Baker v Merrett, [1990] 1 W.L.R. 1205 (21 March 1990).

[13] BBW v BBX, [2016] SGHC 190.

[14] Balakrishnan and Jalan, A Case of Recognizing the Pitfalls in Section 42A of the Indian Arbitration Act, RMNLU Arbitration Law Blog (2020), https://rmlnluseal.home.blog/2020/06/09/a-case-of-recognizing-the-pitfalls-in-section-42a-of-the-indian-arbitration-act/.

[15] QMUL, 2010, International Arbitration Survey: Choices in International Arbitration, Available at: https://arbitration.qmul.ac.uk/media/arbitration/docs/2010_InternationalArbitrationSurveyReport.pdf.

[16] Catherine A. Rogers, Transparency in International Commercial Arbitration, 54 U. Kan. L. Rev. 1301 (2006).

[17] Avinashi Poorooyee & Ronan Feehily, Confidentiality and Transparency in International Commercial Arbitration: finding the right balance, Harvard Negotiation Law Review (275), 275-324 at 276, (2017).

[18] Florentino P. Feiciano, The Ordre Public Dimensions of Confidentiality and Transparency in International Arbitration: Examining Confidentiality in the Light of Governance Requirements in International Investment and Trade Arbitration, 87 PHIL. L.J. 1, 2 (2012).

[19] Abhilash Vishwanathan, Transparency vs Confidentiality in Arbitral Proceedings, Kove Global, http://www.koveglobal.com/transparency-v-confidentiality-in-arbitral-proceedings/#.

[20]  Ibid.

[21] International Chamber of Commerce Rules, Jan. 1, 2021.

[22] Arbitration Act 1996, s. 14 (N.Z.)

[23] Arbitration Act 1996, s. 14C(b)(ii) (N.Z.)

[24] Stefano Azzali, Confidentiality vs. Transparency In Commercial Arbitration: A False Contradiction to Overcome, Law Blog, NYU (2012), https://blogs.law.nyu.edu/transnational/2012/12/confidentiality-vs-transparency-in-commercial-arbitration-a-false/.