Duty to Maintain Confidentiality of Arbitration Proceedings: Yet Another Amendment in Haste – By Aaditya Vijaykumar

A typical hearing in a domestic arbitration is a mixture of some work and mostly unrelated conversations between lawyers and the arbitrators, of arbitrations done by each of them in the past and at times a conversation on the intricate details of the arbitrations. This conversation, to purportedly build a rapport, follows either before or during or after the hearing or at each stage (with the “or” in the sentence being replaced with an “and”). For a lawyer or the arbitrator, confidentiality of a proceeding obviously is a non-existent concept. The question that therefore begs an answer is whether there should be an embargo on these conversations or “disclosures”, which are in the nature of sensitive information being unknowingly passed on? Or should information, which was learnt through these arbitrations, be freely accessible to all?

The Legislature has brought about an amendment in the Arbitration and Conciliation Act, 1996 (A & C Act), in the year 2019, for parties and arbitrators to maintain absolute confidentiality of arbitration proceedings. Once again, like every other ordinance and amendment, this amendment is also introduced in haste without any thought as to how the amendment would work in the entire scheme of things. As is discussed below, the amendment in this regard is unworkable, to state the least.

Introduction:

Arbitration proceedings are essentially an adjudication of a private contractual dispute between the parties by a mechanism outside the confines and the four walls of a court. Several jurisdictions such as England, Switzerland, Singapore etc. and institutions such as Singapore International Arbitration Centre (SIAC) and London Court of International Arbitration (LCIA) have become the hub of international arbitration. This is since they offer speedy and timely adjudication of disputes. However, one of the reasons for choosing these jurisdictions is also that each of the jurisdictions offers confidentiality of arbitration proceedings.  

The question is what is the duty to maintain confidentiality of arbitration proceedings? The duty to maintain confidentiality of arbitration proceedings is the obligation of every single person involved in the arbitration and in case of an institutional arbitration, the staff as well, to maintain confidentiality of information filed during the process of arbitration. This would include non disclosure of the statement of claim, the statement of defence, the documents filed therewith, the evidence, the procedural orders and in certain jurisdictions, the award itself to third parties. 

The international view:

Some jurisdictions such as New Zealand [1], Peru, Scotland and Singapore [2] have meticulous regulations relating to the duty to maintain confidentiality of arbitration proceedings. Other jurisdictions such as England, Switzerland and to an extent Canada move on the implied duty of confidentiality of the arbitration proceedings, which is a doctrine developed through precedents [3]. Each of these duties is subject to exceptions such as disclosure on account of court orders, parties consent to disclose, public interest and reasonable necessity. 

Certain jurisdictions, however, have not enforced the duty to maintain confidentiality of arbitration proceedings at all, except where there is a specific agreement to maintain confidentiality. These include jurisdictions such as Australia, Sweden, United States and other similar jurisdictions.[4]

The way the arbitration institutions view this duty:

Similar is the divergence in institutions conducting and carrying on arbitration. The International Court of Arbitration (ICA) under the International Chamber of Commerce (ICC) originally did not publish awards on the ground of confidentiality. However, the ICC has, since, moved towards some element of transparency. As per the ICC, the Arbitral Tribunal and the staff of ICC alone are obligated to maintain confidentiality of the arbitration proceedings [5]. However, the Rules of ICC specifically exclude the parties from a duty to maintain confidentiality of the arbitration proceedings, unless there is an agreement to the contrary [6]. In fact, the ICC has started to publish awards, if the parties so request [7]. Similar is the view taken by other institutions as well. [8]

However, the London Court of International Arbitration (LCIA) provides a duty to maintain confidentiality of the arbitration process with exceptions carved out, similar to some of the exceptions by the English Courts. [9] Singapore International Arbitration Centre (SIAC) also follows the rules for confidentiality, with elaborate exceptions. [10]

The view in India prior to the amendment:

Many jurisdictions such as India wanted to give absolute autonomy to parties to decide how they wish to proceed in process of arbitration. The parties were thus free to agree to confidentiality of the proceedings, if they wished to. This was in consonance with the UNICITRAL model. However, before 9^th August, 2019, certain institutions in India such as the Delhi International Arbitration Centre (DIAC) [11], Mumbai Centre of International Arbitration (MCIA) [12] etc. followed a similar rule as provided by SIAC and LCIA respectively. Thus, each of these institutions encouraged that the parties maintain confidentiality of arbitration proceedings and essentially gave a go by to the rule of party autonomy. This fact was never expressly brought to the attention of the parties and was only part of a booklet of rules, which was handed over at the time when the proceedings began.

In the case of ad hoc arbitrations, the arbitrators and lawyers did not enter into such agreements of confidentiality, since all of them were blissfully unaware of any such doctrine. A party to the proceeding could, therefore, never exercise autonomy and reach an agreement since they were never apprised of this fact in the first instance.

Constituting a High Level Committee

In the interregnum, a need was felt to make amendments to the existing Arbitration & Conciliation Act. A High Level Committee (HLC) was constituted with Justice Srikrishna heading the committee, which inter alia, recommended the inclusion of confidentiality of arbitration proceedings subject to exceptions such as disclosure on account of court orders, parties consent to disclose, public interest and reasonable necessity. 

The (un)implementable amendment:

Keeping in view the recommendations of the HLC, an amendment dated 09^th August, 2019 came into force. By way of this amendment [13] (which contains a non obstante clause), a duty to maintain confidentiality of all arbitral proceedings came into being. A solitary exception was carved out which was the disclosure for the purposes of implementation and enforcement of an award. The amendment relating to confidentiality is reproduced:

“42A. Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.”

On applying the principles of ejusdem generis or noscitur a sociis, as the words “implementation and enforcement of the award” are used together for the purposes of disclosure, these two words could only connote that disclosure can be made for the purposes of execution proceedings. Separate meanings cannot be ascribed to “implementation” and to “enforcement”.

Further, since the recommendations relating to the exceptions of the HLC have not been incorporated, but for one exception, this essentially means that the exceptions such as parties’ consent, public interest and reasonable necessity cannot be pressed into operation at any point in time. 

As usual the amendment is not workable:

Besides taking away “parties autonomy”, which is integral to the A & C Act, the amendment is also absolutely unworkable. Firstly, owing to the fact that disclosure can be made only for execution/ enforcement proceedings, it is not understood as to how parties would be in a position to file petitions under Section 9 (petition for interim relief during and after the arbitration proceedings), Section 14 (replacement of the arbitrator), Section 34 (objections to the award), and Section 37 (appeal) of the A & C Act. This is because filing these petitions would require disclosure of the arbitral record, which itself is prohibited. It may be stated that the view is too technical but the question that one needs to ask is can the words of the statute be amenable to a wider meaning to include a challenge to an award? The answer is an emphatic “no”. 

The respective superior courts, hearing challenges or petitions for interim relief, would also have to take steps to ensure that parts of the award and their own judgments are not published on the respective court platform. Publishing judgments would violate a party’s duty to maintain confidentiality. Would a party who has filed the proceeding challenging the award be liable for damages merely because he disclosed the arbitral proceedings, being aggrieved by an award? Would a person be liable for damages if the party does not take steps to ensure that the courts of competent jurisdiction does not publish the order accepting or rejecting a challenge to the award? 

Further, as exceptions such as disclosure in public interest, reasonable necessity etc. have been expressly excluded, despite recommendations of the HLC, it is not understood as to how arbitral records would be disclosed if information is sought under any other statute such as the Right of Information Act or if records are summoned by the enforcement agencies such as the police, CBI, SEBI or Enforcement Directorate under the respective statutes. The unfortunate truth is non co-operation by an entity, on account of the above amendment, jeopardizes bail applications. In addition, a kalandra case for non co-operation could be registered, if a notice under Section 91 of the CrPC is issued and not complied with by an entity. Such a provision thus causes more problems than it addresses.  

Similarly, if a listed company is to make a disclosure to the stock exchange, which is mandatory, how does the listed company propose to make such a disclosure in view of the amendment? 

If parties seek to adduce expert opinion, it would be impossible to discern as to what could be disclosed for the purposes of providing an expert opinion, because the wide sweep of the statute pre-empts a party from doing so. 

Curiously, non-compliance of this provision inserted by way of an amendment entails no penal consequence. Thus, the question, which lies for consideration, is if a party wishes to enforce such a provision/ breach, how does it propose to do so? Would it sue the party disclosing information once again? Would a second arbitration (under the arbitration agreement) for damages lie? Would the parties be relegated to proceedings before civil court? If so, what is the point of such a proceeding if a party has to sue once again for a breach of confidentiality? Why would a party have the patience to sue once again and go through the entire rigmarole of claiming damages, if it has to go through the arduous process of litigation? 

The next question which arises is how does the breach or how can the breach be traced back to a particular party? There is absolutely no manner of ascertaining how the disclosure of a particular fact or information has been made. How does an aggrieved party sue in such a case? Some may say that considering the nature of the agreement, the agreement to maintain confidentiality of the arbitration process would well be redundant. If that is the case, why should there be such an agreement in the first place?

India, to somehow become the “hub of arbitration”, has, without any application of mind, sought to take principles from other countries where arbitration has ostensibly blossomed. This is taken without understanding that institutions such as ICC and AAA are moving away from confidentiality after realizing the pitfalls in the entire process.  India has also not understood that to become the “hub of arbitration”, one has to look for faster and cheaper adjudication and not to subscribe to the presently unworkable frill of confidentiality. The signal that India is sending out is that India is willing to compromise transparency so that it becomes a “hub for arbitration”. Surely, this could not have been the intention at all. 

Conclusion:

In conclusion therefore, there is no doubt that the Legislature ought to have some sense or pulse of the law and ground realities before amendments are introduced. The Legislature cannot sit in an ivory tower and think that repeated amendments can be made to tweak the law, as has been done in the case of other laws.

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Aaditya Vijaykumar is a lawyer practicing in the Delhi High Court. His practice areas include arbitration, litigation relating to contractual disputes, consumer disputes, gaming laws, anti-trust issues, litigation before the Debt Recovery Tribunal, NCLT, litigation for and on behalf of the government and PSUs, as well as litigation relating to property disputes and election laws.

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[1] Section 14 B of the New Zealand Arbitration Act; 

[2] Section 57 of the Singapore Arbitration Act;

[3] Insurance Co v Lloyd’s Syndicate (1994), [1995] 1 Lloyd’s Rep 272 (QB Comm Ct), London & Leeds Estates Ltd v Paribas Ltd (No 2) (1994), [1995] 1 EGLR 102, [1995] 02 EG 134, Ali Shipping Corporation v Shipyard Torgir [1998] 2 All ER 136 (CA), [1999] 1 WLR 314;

[4] Esso Australia Resources Ltd v Plowman, [1995] HCA 19, 183 CLR 10 [Esso Australia], United States v Panhandle E Corp, 118 FRD 346, 1988 US Dist LEXIS 1177 (D Del 1988), Bulbank v. AI Trade Finance;

[5] Article 6, Appendix I and Appendix II, ICC Rules (in force from 1^st March 2017);

[6] Article 22(3) of ICC Rules

[7] Section III(D) of the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration dated 20^th December, 2018;

[8] Rule 37.1 of the ICDR of American Arbitration Association;

[9]  Rule 30.1 of the LCIA Rules;

[10] Rule 39 of the SIAC Rules, 2016;

[11] Rule 36 of the DIAC (Arbitration Proceeding) Rules, 2018;

[12]  Rule 35 of the MCIA Rules, 2016;

[13] Section 42A of the Arbitration and Conciliation (Amendment) Act, 2019

Disclaimer: The views or opinions expressed are solely of the author.