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The Role of Confidentiality in Arbitration: Balancing Transparency and Privacy

Introduction


Arbitration has gained significant popularity as an alternative method for settling disputes outside of conventional legal frameworks. A major advantage of arbitration is its emphasis on confidentiality, which ensures that both the proceedings and their outcomes are kept private. This allows the parties involved to safeguard their privacy and sensitive information. Additionally, the court system is often overwhelmed with a substantial backlog of cases, leading to instances where cases can remain unresolved for years, particularly those that are complex or involve high stakes. Consequently, including arbitration clauses in significant transactions and agreements has become increasingly common.


Privacy and confidentiality are commonly seen as related concepts. In the context of arbitration, privacy means that third parties and outsiders are barred from participating in or observing the arbitration process unless both parties agree to allow it. On the other hand, confidentiality pertains to the restriction on disclosing any materials presented during the arbitration or the final decision itself. Without the consent of the parties involved, those materials cannot be revealed by the tribunal, the parties, witnesses, or anyone else present during the proceedings.


The purpose of privacy in arbitration is to prevent any external parties from interfering in the process, while confidentiality requires the parties involved to legally refrain from disclosing information about the arbitration proceedings.


The idea of confidentiality in arbitration has its adversaries. Critics contend that it may obstruct transparency and accountability. This article will investigate the function of confidentiality in arbitration, analysing its advantages and possible disadvantages, and ultimately addressing the fine line between transparency and privacy.


The Importance of Confidentiality in Arbitration


Confidentiality is a key feature of arbitration that sets it apart from conventional litigation. In contrast to court cases, which are typically accessible to the public, arbitration provides parties with a private and confidential environment to settle their disputes. This confidentiality serves several important purposes.


A. Preserving Privacy


Confidentiality in arbitration helps parties protect their privacy, preventing unwanted exposure to the public eye. Often, the disputes being resolved through arbitration involve private or sensitive information that parties prefer to keep confidential. For instance, in commercial conflicts, matters such as trade secrets, proprietary data, or financial information could be involved. By ensuring that the proceedings are kept confidential, arbitration creates a secure environment for parties to communicate and present their evidence without the risk of harming their reputation or business interests.2.


B. Encouraging Openness and Cooperation


Maintaining confidentiality encourages transparency and collaboration among involved parties. When parties are assured that their information and evidence will remain private, they are more inclined to share openly. This creates a cooperative atmosphere where parties can exchange details freely and strive for a solution that benefits everyone. Conversely, in a public court environment, parties might be more cautious and reluctant to share information due to worries about how it could affect their reputation or competitive edge.


C. Protecting the Parties' Relationship


Confidentiality in arbitration plays a significant role in maintaining the relationship between the parties. Unlike litigation, which can create tension due to its combative nature, arbitration fosters a more friendly and collaborative environment. By ensuring that the proceedings remain private, parties can steer clear of public examination and the risk of harming their current business or personal connections. This is especially crucial in conflicts involving business partners or individuals who share a continued relationship outside the specific issue being resolved through arbitration.


Criticisms of Confidentiality in Arbitration


Although confidentiality in arbitration provides various advantages, it also faces criticism. Some people contend that prioritizing confidentiality may obstruct transparency and accountability, which raises questions about fairness and the public interest.3


A. Lack of Public Scrutiny


A major critique of confidentiality in arbitration is that it limits public scrutiny. Unlike court cases, which are open to the public, arbitration proceedings are typically held in private. Critics argue that this lack of transparency may undermine public confidence in the arbitration process and impede the public's ability to assess the fairness and impartiality of the arbitrators. The absence of public oversight raises concerns that arbitrators could potentially favor powerful parties or those who frequently participate in arbitration., potentially compromising the integrity of the process4.


B. Limited Precedential Value


A common criticism of arbitration is that its confidentiality limits the development of legal precedents. In contrast to court proceedings, where decisions are publicly available and can inform future cases, arbitration rulings are usually kept confidential. This lack of transparency makes it difficult for parties to rely on prior decisions as reliable references. The scarcity of recognized precedents can lead to inconsistent outcomes and legal uncertainty, particularly in specialized areas where arbitration is commonly used, such as international trade and construction disputes.


C. Impeding Public Interest


Certain critics argue that the confidentiality inherent in arbitration can clash with the public good. In matters concerning public safety, consumer protection, or human rights, there is a legitimate public interest in knowing the details of disputes and their resolutions. This level of secrecy can hinder public access to important information regarding potential hazards or widespread problems associated with specific industries or practices. Consequently, such a lack of openness may obstruct the identification and resolution of fundamental systemic issues. potentially perpetuating harmful practices5.


Balancing Transparency and Privacy


Although the concerns regarding confidentiality in arbitration are legitimate, it is crucial to find a middle ground between transparency and privacy to maintain the efficacy and integrity of the arbitration process. Several measures can be implemented to address these concerns without compromising the benefits of confidentiality6.


A. Limited Disclosure for Public Interest Cases


In matters that concern the public, it might be important to allow a certain level of information sharing to enhance transparency and accountability. This can involve withholding sensitive information while still providing sufficient details to keep the public informed about the core issues of the dispute and its resolution. By finding a balance between maintaining privacy and upholding the public's right to be informed, arbitration can significantly contribute to the development of legal principles and the protection of community interests.


B. Enhanced Disclosure Requirements


To address concerns regarding fairness and impartiality, arbitration organizations ought to adopt more rigorous disclosure requirements for arbitrators. By requiring arbitrators to disclose any potential conflicts of interest, affiliations, or previous engagements with the parties involved, transparency can be enhanced. This strategy enables the parties to assess the arbitrators' neutrality, promoting public confidence in the arbitration process and reducing concerns about bias or partiality.


C. Promoting Voluntary Transparency


Confidentiality is a key principle of arbitration; nonetheless, parties have the choice to voluntarily share specific information or the final ruling. This flexibility can be beneficial when the parties wish to set a precedent or contribute to legal progress. By allowing them to decide the suitable degree of transparency based on their unique situation, arbitration can successfully reconcile the need for privacy with the public's interest.


Positions Regarding Confidentiality in Arbitration in Different Jurisdictions


Many jurisdictions have adopted their domestic laws from the UNCITRAL Model Law on International Commercial Arbitration, which does not explicitly address confidentiality. The law emphasizes the autonomy of the parties, allowing them to determine whether they wish their proceedings to remain confidential. To facilitate this, parties can incorporate a confidentiality clause into their arbitration agreement. Due to the absence of defined rules regarding confidentiality in arbitration, there is a difference in the laws of different jurisdictions on whether arbitration proceedings should be confidential7. 


In the United Kingdom, the courts ensured to keep a balance between the parties regarding confidentiality and the public interest. Without an express clause in the agreement stating otherwise, confidentiality is protected in the proceedings. However, it is made sure that the public interest is not compromised while protecting confidentiality.


In the USA, Australia, and France the right to confidentiality is not implied. There is no inherent obligation of confidentiality until there is no express contract made for it. 


New Zealand is a step ahead in protecting confidentiality than other countries. There is an inherent duty to confidentiality, as well as any court proceedings arising out of the arbitration will also stay confidential. 


India's Arbitration and Conciliation Act of 1996's provisions on confidentiality


In India, parties have the option to select either ad hoc arbitration or institutional arbitration. Those who opt for ad hoc arbitration can incorporate a confidentiality clause in their arbitration agreement, while those who choose institutional arbitration must follow the rules set by the respective institution.


The Arbitration and Conciliation Act, 1996 governs arbitration confidentiality in India. On the proposal of the Justice B.N. Srikrishna Committee, which produced a report with certain recommendations to strengthen arbitration in India, a provision relating to secrecy was introduced to the Act. The Arbitration and Conciliation (Amendment) Act, 2019, was passed after the suggestion was adopted. Section 42A was added.


Section 42A addresses the confidentiality of information related to arbitration. It mandates that the arbitrator, the arbitral tribunal, and the parties involved maintain secrecy, except when disclosure of the award is necessary for its implementation and enforcement. Being a non-obstante provision, it takes precedence over other conflicting regulations. it takes precedence over all other laws in the act9.


Section 42A does not talk about the other people attending the arbitration proceedings like clerks, stenographers, witnesses, etc. This section brings out exceptions to Section 8,9,11,17, etc. of the Arbitration and Conciliation Act, 1996, Third parties may also approach the court to request a reference to an existing process where the parties are requesting relief from the court under the relevant section. As a result, there is a good chance that the parties seeking judicial interventions will need to depend on the private information from the arbitration.


In Mahanagar Telephone Nigam Ltd. v. Canara Bank10. the Supreme Court of India allowed non-signatories to claim reference to arbitration proceedings by showing their degree of involvement in the contract.  These references may require disclosure of confidential information from arbitration proceedings.  Thus, the courts in India need to define the extent to which confidential information should be disclosed in court proceedings. They need to strike a balance between the party pleading exception to section 42A and overall requirement to maintain confidentiality.


Measures to Protect Confidentiality


Maintaining absolute confidentiality can be challenging, but implementing several strategies can help minimize the risk of information leakage and support the highest level of confidentiality achievable.


An important aspect to consider is incorporating a confidentiality clause within the arbitration agreement. This clause should clearly define the repercussions for any breaches, outline the necessary level of confidentiality, specify the security protocols that the parties are expected to follow, and establish what information is deemed confidential.


In circumstances that involve third parties, including witnesses, experts, and others who may handle sensitive information, it is crucial to have those parties sign a confidentiality agreement. This agreement should explicitly detail their responsibility to keep information confidential and make them aware of the potential legal consequences of any violations. Furthermore, the involved parties might consider limiting the number of copies of confidential information used during arbitration to prevent any accidental leaks.


Conclusion


Confidentiality plays a crucial role in arbitration, allowing parties to maintain their privacy, encouraging openness and cooperation, and preserving relationships. However, concerns about transparency, accountability, and the public interest cannot be ignored. Striking the right balance between transparency and privacy is essential to ensure the effectiveness and integrity of the arbitration process. By implementing limited disclosure for public interest cases, enhancing disclosure requirements for arbitrators, and promoting voluntary transparency, arbitration can maintain its confidentiality while addressing the legitimate concerns raised by its critics.


However, it is evident that there are numerous problems in imposing confidentiality obligations.  In the initial stages of the development of laws of arbitration, confidentiality was not given much importance, but now an increasing number of legislations have given centrality to this issue. Although the effort by India to protect confidentiality by introducing Section 42A is laudable, it only creates more problems by keeping its language limited. 


Therefore, the bottom line is that unless the confidentiality concerns are addressed properly, it is delivering a promise of confidentiality that is inherently broken. It is important to address these matters carefully to keep the faith in arbitration as an effective means of dispute resolution.


References:

2 Ibid

5 Ibid

10. (Civil Appeal Nos. 6202-6205 of 2019)

 

This article is authored by Mohammad Adil. He was among the Top 40 performers in the Legal Drafting Quiz Competition organized by Lets Learn Law.

 

 
 
 

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