A Conflict of Principles: Confidentiality and Open Justice in Arbitration Disputes in Court

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3 years ago

Introduction

Arbitration, as an alternative dispute resolution mechanism, was brought in to overcome the difficulties of pursuing litigation. Among several factors like cost-effectiveness and speedy justice, one of the foremost reasons for parties to choose arbitration is confidentiality of the arbitral proceedings.1 The promise of confidentiality ensures that business strategies and other sensitive information is not divulged to the public at large. Although confidentiality is not always guaranteed, most countries as well as institutional rules provide for the same.

A primer to confidentiality in arbitration proceedings

Confidentiality is an obligation on the part of the parties “to not disclose information concerning the arbitration to third parties or the public”.2 This obligation often extends to non-disclosure of the hearing transcripts, written pleadings, evidence, materials produced during disclosure and the arbitral award(s) and orders, to third parties.3

I. Provisions for confidentiality in the national laws and institutional rules

National laws

India

The Arbitration and Conciliation Act, 19964 (hereinafter “the 1996 Act”) has undergone multiple amendments since its inception. The Arbitration and Conciliation (Amendment) Act, 20195 (hereinafter “the 2019 Amendment”) officially laid down the ground for confidentiality in arbitral proceedings. Before the 2019 Amendment, the principle of “confidentiality” was only applicable to conciliation under Section 756. Following the recommendations of the 2017 High-Level Committee headed by Justice B.N. Srikrishna7, Section 42-A was introduced by the 2019 Amendment8. Section 42-A is identical to Section 75, but for arbitration. It imposes the liability of maintaining confidentiality on the parties, the arbitrators and the arbitral institution.

While it can be seen that confidentiality plays a pivotal role, it is surprising to note that even the 1996 Act does not have a provision imposing punitive measures in case of a breach. Confidentiality must also be imposed upon other persons present in the arbitral proceedings such as witnesses, stenographers and clerks.

Singapore

The laws of Singapore are one of the few that elaborate upon the obligation of confidentiality imposed. It is assumed that the proceedings will be heard in open court unless either of the parties requests otherwise.9 The Arbitral Tribunal has the power to enforce any obligation of confidentiality.10 There are restrictions on reporting the proceedings heard in courts other than the ones in open court.11 Further, on application of any party, the court can give directions as to whether any and, if so, what information relating to the proceedings will be made available to the public.12 Information will only be published in two circumstances. First, if the parties agree13 and second, if the court is of the opinion that such information published with directions will not reveal any confidential details.14 Nonetheless, the court may direct publication of the judgment if it deals with a substantial question of law involving the interpretation of the said section.15 Even then, information may be concealed at the request of any party.16

United Kingdom

The UK Arbitration Act, 1996 does not specify anything at all with regards to maintaining confidentiality during the arbitral proceedings. However, an implied obligation of maintaining confidentiality has been imposed.17

Institutional arbitrations

Indian Institutional Rules

The Delhi International Arbitration Centre18 and the Mumbai Centre for International Arbitration19 under Rules 36.2 and 35.2 of their institutional rules respectively, lay down the exceptions in which the party or the arbitrator may reveal confidential information to a third party. Apart from such exceptions, disclosure cannot be made without prior written consent of all parties.

Singapore International Arbitration Centre (hereinafter “SIAC”)

Under the SIAC Rule 24.4,20 unless the parties wish to waive off confidentiality, all the proceedings and the documents related to the arbitral proceedings will remain confidential. Furthermore, the confidentiality obligations will be on the “Emergency Arbitrator” as well.21 Disclosure to a third party is subject to prior consent of the parties and limited to matters such as application for enforcement, challenge to the award,22 subpoena issued23, etc. Interestingly, the Tribunal can impose measures such as sanctions or costs in case of any breach by a party.24

The London Court of International Arbitration (hereinafter “LCIA”)

The LCIA Arbitration Rules under Article 30 levy the obligation of confidentiality on the parties and on anyone else included in thearbitration.25Except for in cases as provided by the LCIA Rules or the applicable law, the confidentiality requirement will continue to apply.26 No award will be published without prior written consent of all the parties and the Tribunal.27

ii. Need for confidentiality

A host of reasons are responsible for making confidentiality so important to the parties. During the arbitral proceedings, submissions are made in the form of documentary and oral evidence. Such supporting evidence, depending on the nature and content matter of the dispute, can reveal a variety of private information, which if disclosed could have negative repercussions. Trade secrets and sensitive information such as pricing information, business plans, manufacturing knowhow, plans, sketches, and other corporate records are extremely confidential.28 If such information becomes public knowledge, it can negatively impact the reputation of such party. It can also lead to a media trial. More importantly, competing organisations being privy to such information can threaten the very existence of a business.

Confidentiality, on the presumption of which arbitration is invoked, is guaranteed only for the duration of the arbitral proceedings. The key factor for analysis is what happens when a party appeals against the award granted in such proceedings or seeks enforcement of such an award in a court of law.

Contrasting principle of open justice

Contrary to the principles of confidentiality and privacy, common law courts are based on the principle of open justice. As Jeremy Bentham stated, “Publicity is the very soul of justice, it is to publicity more than to everything else put together, that the English system of procedure owes its being the least bad system yet extant, instead of being the worst.” The heart of this principle is “justice must not only be done, it must manifestly be seen to be done”.29

The principle of “open justice” has a number of precepts:

the entitlement of an interested person to attend court as a spectator;
the promotion of full, fair and accurate reporting of court proceedings;
the duty of Judges to give reasoned decisions;30and
public access to judgments of courts31.

Although, the origin of this doctrine is unknown, courts all across common law jurisdictions have provided various reasons elaborating on the importance of this principle. These include:

Judicial accountability

According to Bentham, publicity is “the keenest spur to exertion and surest of all guards against improbity. It keeps the Judge himself while trying under trial (in the sense that) the security of securities is publicity”. The position of a Judge, in most common law countries is tenured. These Judges are unlikely to be removed or dismissed unless grave injustice has been caused. For such grave injustice to be apparent, it is essential for the public to have access to court proceedings and judgments. Hence, it is very important to keep a check on judicial behaviour which can be done effectively through a system of open courts.32

Evolution of jurisprudence

Judicial precedents form an essential part of all legal systems which derive their roots from the common law system. In common law countries, case laws i.e. past judicial decisions have the bearing of binding law itself. In light of this, the laws of a country keep evolving with new judgments laying down new legal principles. Hence, it is essential for judgments to be available to all so that the public is well aware of the evolution of jurisprudence. In India, it has been established that access to evolution of law, as a result of adjudication of cases, is an important facet of the citizen’s right to know under Article 19(1)(a) of the Constitution of India33.34

Public interest

A system of open courts is pivotal to societal advancement as it is essential for citizens to be aware about judicial procedures and basic legal principles. Through several judicial decisions, courts have recognised the importance of open courtrooms as a means of allowing the public to view the process of rendering of justice. First-hand access to court hearings enables the public and litigants to witness the dialogue between the Judges and the advocates and to form an informed opinion about the judicial process.35 Hence, a system of open courts furthers legal awareness in society.

Open justice versus confidentiality: A critical analysis

It is evident that there exists a conflict between the confidentiality of arbitration and the system of open courts. In order to reconcile this conflict, there are various legal questions which need to be answered.

Independent nature of court proceedings

Although the mechanism of arbitration was introduced, inter alia, to reduce the burden on civil courts and provide speedy justice, there are various post-award steps such as enforcement and setting aside of awards which often involve a court of law. Involvement of courts in arbitrations is not just limited to the post-award stage. Parties often approach courts for interim reliefs during the pendency of arbitration proceedings, appointment of arbitrator(s), [if the parties are mutually unable to appoint arbitrator(s)], and even to merely refer parties to arbitration when they have contractually agreed to arbitrate a specific dispute.

Hence, the primary question which needs to be answered in this conflict between open justice and confidentiality is whether court proceedings can be completely bifurcated from the arbitral proceedings they arise out of. It is important to determine whether the principles applicable to arbitral proceedings could be carried forward to the court proceedings arising out of them.

The Supreme Court of India has a very clear stance on this issue. While dealing with the Arbitration and Conciliation (Amendment) Act, 201536 (hereinafter “the 2015 Amendment”), the Court opined that the scheme of the 1996 Act post the 2015 Amendment is one which bifurcates between court proceedings and the corresponding arbitration.37A new Section 8738 was introduced into the 1996 Act by the 2019 Amendment which took a contrary stance and insinuated that court proceedings are “merely parasitical” to the underlying arbitration. By striking down Section 87, the SupremeCourt has ensured that such a bifurcating scheme introduced by the 2015 Amendment continues to apply post the 2019 Amendment as well.39

Therefore, the principles which apply to the original arbitral proceedings might not necessarily apply to the court proceedings arising out of that arbitration.

Adjudicating arbitration matters in an open court: A violation of parties’ consent

Another aspect which needs to be dealt with while debating between confidentiality and open justice is that of parties’ consent. Arbitration in its very essence is a consensual dispute resolution mechanism. Parties, via contracts, choose to arbitrate certain disputes rather than litigating them. Similarly, parties via their contracts or even merely submitting a dispute to arbitration agree to keep the subject-matter and relevant evidence confidential. Hence, another factor for consideration is whether implementing a system of open courts while adjudicating arbitration matters would be a violation of parties’ consent.

The English Court of Appeal has opined that “arbitration claims brought to court are no longer consensual. The possibility of pursuing them exists in the public interest. The courts, in such cases, are acting as a branch of the State, not as a mere extension of the consensual arbitral process”.40By stating this, the Court of Appeal has made it clear that once civil courts are involved in arbitration claims, an argument for violation of parties’ consent cannot be made. This is because the consent of parties to keep the proceedings confidential is limited to the arbitration proceedings itself. Thus, court proceedings arising out of arbitrations are non-consensual in nature and the parties’ agreement to keep arbitration proceedings confidential does not bar the court from applying the principle of open justice.

Barring appeals

An avenue to ensure confidentiality of proceedings is barring appeals against an arbitral award itself. Some institutional rules allow the parties to waive their right to appeal against the arbitral award, making the award final and binding. An example of such a provision is Article 26.8 of the LCIA Rules, 2020.41These provisions were originally introduced to ensure speedy justice which is often lost when parties appeal to a court of law. They can also be used to ensure that the proceedings remain confidential by avoiding the interference of courts in the arbitral award. Nonetheless, this might not be possible in all scenarios as appeals form an essential part of the arbitration regime and it is not always recommended to waive off such a right to appeal. In fact, such a waiver would render the concept of seat of arbitration redundant by taking away the courts’ supervisory jurisdiction over arbitral proceedings.

Implementation of confidentiality in courts: A balancing Act

As stated earlier, the principle of confidentiality might not necessarily apply to court proceedings arising out of corresponding arbitration by virtue of them being distinct. However, courts in certain situations have carried forward the principle of confidentiality from the original arbitration to the court proceedings. An argument may be made that this is only possible in certain jurisdictions, which have express provisions for maintaining privacy in arbitration appeals.42When such an express provision of maintaining confidentiality is missing in the applicable law, a balance of interest test must be applied.

The balance of interest test entails that when two conflicting legal principles apply to the same proceedings, the court must determine which principle outweighs the other and to what extent. In the context of the current conflict, the court must determine if the principle of confidentiality is sufficiently significant to override the foremost principle of open justice.

The principle of open justice will override the principle of confidentiality, unless it can be established that a party will be substantially prejudiced if the proceedings are not kept confidential.43 Even in such a scenario, the English Court of Appeal has stated that it will only do the bare minimum necessary for protecting the interest of parties in order to preserve the indispensable principle of open justice.44

Conclusion

In this age-old battle between confidentiality and open justice, we see that the determination of the overriding principle amongst the two is a matter of fact which varies on a case-by-case basis. It is crucial for the court to strike a balance between the two in order to make sure that no party is substantially prejudiced by the decision of the court.45Without such a balance, one of the parties or the general public at large will always be at a significant disadvantage. Moreover, the law in this regard is not settled when it comes to jurisdictions like India. Implementing the principles laid down in the various judgments of other jurisdictions can thus, prove to be of immense importance in developing the jurisprudence around confidentiality in India.

*Penultimate year law students, Government Law College, Mumbai. Authors can be reached at jaindrasti23@gmail.com and aryandeshmukh17@gmail.com.

1Gary Born, International Commercial Arbitration 3001 (3^rd Edn., Kluwer Law International 2020).

2Gary Born, International Commercial Arbitration 3001 (3^rd Edn., Kluwer Law International 2020).

3Gary Born, International Commercial Arbitration 3001 (3^rd Edn., Kluwer Law International 2020).

4 Arbitration and Conciliation Act, 1996.

5 Arbitration and Conciliation (Amendment) Act, 2019.

6 Arbitration and Conciliation Act, 1996, S. 75.

7Department of Legal Affairs, p. 71, <https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf>.

8 Arbitration and Conciliation (Amendment) Act, 2019, S. 42-A.

9International Arbitration Act, 1994, S. 22 (Singapore).

10International Arbitration Act, 1994, S. 12(1)(j) (Singapore).

11International Arbitration Act, 1994, S. 23(1) (Singapore).

12International Arbitration Act, 1994, S. 23(2) (Singapore).

13International Arbitration Act, 1994, S. 23(3)(a) (Singapore).

14International Arbitration Act, 1994, S. 23(3)(b) (Singapore).

15International Arbitration Act, 1994, S. 23(4) (Singapore).

16International Arbitration Act 1994, S. 23(4)(a) (Singapore).

17 John Forster Emmott v. Michael Wilson & Partners Ltd., [2008] Bus LR 1361 : 2008 EWCA (Civ) 184

18Delhi International Arbitration Centre (Arbitration Proceedings) Rules, 2018, R. 36.2.

19Mumbai Centre for International Arbitration Rules, 2016, R. 35.2,

20Singapore International Arbitration Centre Rules, 2016, R. 24.4.

21Singapore International Arbitration Centre Rules, 2016, R. 39.1.

22Singapore International Arbitration Centre Rules, R. 39.2(a).

23Singapore International Arbitration Centre Rules, R. 39.2(b).

24Singapore International Arbitration Centre Rules, 2016, R. 39.4.

25London Court of International Arbitration Rules, 2020, Art. 30.1.

26London Court of International Arbitration Rules, 2020, Art. 30.2.

27London Court of International Arbitration Rules, 2020, Art. 30.3.

28DomitilleBaizeau and Juliette Richard, Addressing the Issue of Confidentiality in Arbitration Proceedings: How is This Done in Practice?(ASA Special Series No. 43), <https://www.lalive.law/data/publications/08-Chapter_4.pdf>

29R. v. Sussex Justices, [1923] EWHC KB 1.

30 Swapnil Tripathi v. Supreme Court of India, (2018) 10 SCC 639.

31Cunliffe, Emma, Open Justice: Concepts and Judicial Approaches, (2012) 40 Fed L Rev 385.

32 Scott v. Scott,1913 AC 417 (HL); Naresh Shridhar Mirajkar v. State of Maharashtra, AIR 1967 SC 12.

33 Constitution of India, Art. 19(1)(a).

34 Swapnil Tripathi v. Supreme Court of India, (2018) 10 SCC 639.

35 Mohd. Shahabuddin v. State of Bihar, (2010) 4 SCC 653.

36 Arbitration and Conciliation (Amendment) Act, 2015.

37 Board of Control for Cricket in India v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287.

38 Arbitration and Conciliation Act, 1996, S. 87. .

39 Hindustan Construction Co. Ltd. v. Union of India, (2020) 17 SCC 324.

40 Department of Economics, Policy and Development of the City of Moscow v. Bankers Trust Co., [2005] QB 207 : 2004 EWCA (Civ) 314.