DRAFTSMEN OR COURTS: THE RIGHT NODE TO DEMARCATE CONFIDENTIALITY IN ARBITRATION
This post is authored by Aditya Singh, a second-year student of B.A. LL.B (Hons.) at the National Law School of India University, Bangalore.
As the Arbitration Act, 1996 (‘the Act’) completes 25 years of its enforcement, the law commission of England & Wales (‘Commission’), after various prompts by stakeholders, came forth with a consultation paper comprising a general review of the Act. The consultation paper identifies key areas such as confidentiality, disclosure and declaration, review on point of law, etc. This blog in particular will be critiquing the commission’s recommendation on the point of confidentiality in arbitration.
The commission, while acknowledging that there is some merit in codifying a mandatory rule of confidentiality in arbitration, finally concluded that the same is better left for the courts to develop on a case-to-case basis. There were multiple points raised by the commission. This paper will address the fault in the point of why confidentiality cannot be a presumption in every arbitration, and list the various merits of codification despite the provisions possessing the scope for generality.
To elaborate upon the same, this paper will firstly, dwell on how confidentiality as the default should remain the norm in all types of arbitrations as it is a right in personam. To that end, the paper will also analyze the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (‘transparency rules’) as the consultation paper states investor-state arbitration as a repeat example to argue against a presumption of confidentiality. Stemming from this, the paper secondly, will elucidate why codification is necessary to enable efficient enforcement of confidentiality and govern its various facets while also shedding some light on the insufficiency of case laws to fulfil the same.
2. CONFIDENTIALITY – A DEFAULT NORM?
The commission in para 2.40 opined that there cannot be a presumption of confidentiality in all types of arbitrations and stated the examples of investor-state and family arbitrations. The pertinent point to be raised here is that arbitration essentially is a private mode of dispute resolution. The courts in India have effectively construed confidentiality as a right in personam as interests are enforceable against select parties. While there may be other parties whose rights and interests may be at crossroads, their locus standi in the matter is essentially indirect if the dispute is arbitrable in the first place. For example, the Supreme Court of India in cases such as Booz Allen & Hamilton Inc. v. SBI Home Finance and Vidya Drolia v. Durga Trading Corpn has held disputes with direct erga omnes effect to be non-arbitrable. This is because the arbitral award cannot bind/ decide the fate of non-signatories to the arbitral agreement.
The above-stated points should also apply to investor-state arbitrations i.e. if the parties hold the capacity to settle the dispute through arbitration, it is essentially a right in personam. Hence, confidentiality should be the norm. The author at no point disagrees that despite this, certain disclosures will still be necessary but that, in itself, is not sufficient to denote that confidentiality is not the norm and that a framework can sideline the interest of the arbitrating parties. There cannot be a better way to illustrate this than gauging the transparency rules. The rules across all of its provisions establish the arbitral tribunal as the authority to adjudicate on submissions of disclosures to ensure the secrecy of the process and require the adjudication to be in consultation with the parties. Pertinent aspects of transparency, such as publications of documents and hearings, are subject to Article 7 which lays down the exceptions to transparency. Strengthening the provision, an exhaustive list of confidential information including confidential business information, ones protected by a treaty, laws or disclosure that would impede law enforcement, etc have been provided. Even if one were to look at the comments that had been made by IISD and CIEL on draft rules, they agreed that Article 7 does offer important protection, however, they had suggested that the list in present Article 7(2) should be shortened. The above point can also be buttressed by using the commission’s observation in para 2.12 wherein it states confidentiality is also a product of legitimate expectation formed by the circumstance in which certain information was received. And arbitration due to its private nature does qualify as a circumstance giving rise to a legitimate expectation of confidentiality.
3. THE MERITS OF CODIFICATION
Another major point that can be deduced by examining the transparency rules is the insufficiency of common law in filling the necessary facets of confidentiality in arbitration. For example, the transparency rules, where applicable, denote the authority of the tribunal, stakeholders to be consulted at various points, etc. However, the common law is not laid out in sufficient detail to govern such procedural nuances, hence, leading to potential uncertainty and an inability to evolve the jurisprudence in line with globally desired standards. One needs codified provisions to address such details as will be described below. This section will list the various merits of codifying the law on confidentiality.
A. Delegation of Authority
To begin with, the very purpose for which this review was undertaken was to polish the English arbitration regime and maintain its gold standards (para 1.5). By codification, the law can firstly, allocate enforcement authority to the tribunal as confidentiality would remain of little significance otherwise and secondly, it can most importantly selectively allocate adjudicatory authority to the arbitral tribunal to determine disclosures.
To elaborate, the commission while holding Emmott v. Wilson (para 2.32) to be the leading case on exceptions to confidentiality (para 2.17), prepared their possible list of exceptions from its judgement. Of those, items such as the authority to determine whether the consent was free in case disclosure is by consent; whether the interests of the parties are legitimate and can only be served by disclosure, and whether the legal duties cannot be fulfilled without disclosure can be delegated to the tribunal itself. While the authority to adjudicate on items such as to determine whether the disclosure is required in ‘public interest’ can be reserved to the courts if the commission believes there may be considerable opposition and uneasiness with the tribunal adjudicating on this. For example, in jurisdictions with developed administrative laws framework such as France, awards of public-private arbitration can be reviewed by administrative courts for their compliance with mandatory rules of public law because of their public character. Apart from this, delegating authority to the tribunal would also have its utility if the commission were to consider adding a customary exception, as the tribunal would possess specialized knowledge of the various nuances involved. For example, it was observed in Halliburton v. Chubb that it is common in the Bermuda form of arbitration for arbitrators to disclose if the party in the instant arbitration is common without disclosing the details of the opposite party.
The adoption and codification of the above-described model of delegation of adjudication have obvious benefits such as; 1) it will ensure swifter disposal of disclosure applications and reduce the burdens of the courts; 2) the tribunal at places will be pre-acquainted with the facts and circumstances while having the specialized knowledge about the modalities involved in that mode/type of arbitration. These cumulatively reduce the courts’ intervention in arbitration and with the other outlined benefits altogether bolster England’s attractiveness as a seat.
B. Cementing the Parameters & Contours
Addressing the other point on items in the list, the commission opined that while there was hesitancy to include the public interest exception in Emmott v. Wilson, they believe that there should be one (para 2.34). To take a closer look at Emmott v. Wilson, the definition of public interest, as stated in London and Leeds Estates Ltd v Paribas Ltd (No 2) was referred, wherein Mance J, defined it as circumstances wherein the production of certain documents is necessary for “fair resolution and proceedings”. Post which Potter LJ’s ruling in Ali Shipping Corporation v. Shipyard Trogir was referred to look at the definition of ‘public interest’. Potter LJ stated that the basis behind this is to ensure the courts reach their verdicts based on accurate evidence and hence this should be categorized as ‘interests of justice’ as opposed to ‘public interest’. This was to prevent its widening as seen in Esso Australia Resources v The Honourable Sidney James Plowman. Since Emmott relied on Ali Shipping as well, there is a lack of clarity on the nature of the ‘public interest’ exception that exists. The same can be addressed by codifying both exceptions, hence creating room for an interpretation that the public interest exception exists and the legislative intent is to construe them as two separate exceptions. As an add-on, the meanings of the two could also be elaborated upon. Further guidance can be issued by codification as also done u/s 23(F)(1)(a) of the Australian International Arbitration Act, 1974. The same allows the court to prohibit disclosure if the public interests do not outweigh the interests of the disputing parties.
While it has been stated by the courts in snippets, the principle of ‘purpose limitation’ can be cemented with codification along with the proposed exceptions. This will provide the necessary guidance to the adjudicating authority and assurity to the parties that even in the event of disclosures, the authorities are to ensure there is no disclosure beyond what is necessary to serve the purpose for which disclosure is sought. A good example of this would again be the Australian International Arbitration Act which restates this principle at various exceptions and has also empowered the courts to prohibit disclosure on the breach of this ground in S 23(F)(1)(b).
Although there is room for discretion left in the confidentiality provisions of common law countries, a detailed provision as elucidated still has the ability to lay down the contours of development in the desired direction of international best practices and community expectations. The Australian Law’s guidance on public interest considerations as mentioned above is a great manifestation of it. Even the courts in Singapore, for instance, have decisive guidelines in International Arbitration Act, of 1994 to refer to for publication of awards as opposed to digressing into LCIA rules, IBA guidelines, etc like courts in England have had to. While stating the need for codification, although the New Zealand Law Commission limited the observation of the absence of detailed arbitration clauses with proper confidentiality provisions, etc to domestic arbitration, this may also be the case in international arbitration, In such a situation, a detailed provision touching upon various facets is of great assistance. While Singapore is already a major hub, Australia and New Zealand’s legislative reforms on this have also been well received. The fact that a default rule aids in meeting the differences cannot be discounted. All of this cumulatively increases the certainty for the disputing parties and a seat’s popularity as an arbitration destination. Hence the provision should be codified to set the contours while also leaving room for jurisprudential development in that direction.