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Focus: Shifting investor-state arbitration into the public spotlight

5 August 2013

In brief: In response to public interest concerns, the United Nations Commission on International Trade Law has adopted new transparency rules for treaty-based investor-state arbitrations. By mandating greater disclosure of information and permitting third parties to intervene in proceedings, the new rules represent an important shift away from the privacy and confidentiality that have been traditional hallmarks of investor-state arbitration. Partner Andrea Martignoni (view CV) , Senior Associate James Morrison and Lawyer Laura Johnston report.

How does it affect you?

  • Although having a limited impact on investor-state arbitrations arising from existing treaties, the UNCITRAL Rules on Transparency in Treaty-based Investor State Arbitrations (the transparency rules) will, where applicable, mandate an unprecedented degree of transparency in, and accessibility by, the public to these disputes.
  • Investors, states and interested third parties should be aware of the applicability of the transparency rules, including the circumstances in which information and documents from an investor-state arbitration may be disclosed to the public and third parties may intervene in those proceedings.
  • Having been agreed upon by a large number of states through the United Nations Commission on International Trade Law (UNCITRAL), the transparency rules may strengthen the growing momentum for similar future reforms by other international institutions and organisations.
  • Interested parties should remain aware of developments and consider scope for involvement in discussions for reform and related initiatives. 

Background

Privacy and confidentiality have traditionally been cited as advantages of arbitration, distinguishing it from the comparatively public process of state court litigation. In the context of investor-state arbitration, however, the exclusion of non-parties from that process and the ability to prevent information relating to the dispute from becoming public have been criticised in recent years. In particular, health, environmental and human rights groups have argued that, despite often having a legitimate interest in investor-state arbitrations, the public often has little or no knowledge of the dispute and no right to participate in the proceedings.1  

Following these criticisms, certain states and international organisations adopted transparency measures,2 and, in 2008 UNCITRAL decided to deal with the topic of transparency in treaty-based investor-state arbitration as a matter of priority.

In 2010, the UNCITRAL Working Group on Arbitration commenced drafting the transparency rules. The working group comprised representatives of some 38 states (including Australia), as well as observers from various other international organisations.

The transparency rules will apply to investor-state arbitrations:

  • arising out of treaties concluded from 1 April 2014 that refer disputes to the UNCITRAL Arbitration Rules (unless expressly excluded);
  • where state parties to treaties existing before 1 April 2014 agree to their application, including in respect of treaties referring disputes to the UNCITRAL Arbitration Rules or other rules; or
  • by agreement of the parties to an investor-state arbitration under a treaty referring disputes to the UNCITRAL Arbitration Rules or other rules.

An amendment was also made to article 1 of the UNCITRAL Arbitration Rules (2010) to incorporate the transparency rules where applicable.

Key provisions of the transparency rules

  • Disclosure of existence of proceedings: UNCITRAL acts as the repository for all information and documents to be made public, ensuring one central point through which interested members of the public can access details of the arbitration. Under article 2, once the respondent has received a notice of arbitration, the parties are required to send a copy to UNCITRAL, which shall then promptly make information available to the public regarding the parties to the dispute, the economic sector of the dispute and the treaty under which the claim is made.
  • Disclosure of key documents: Article 3 sets out the specific types of documents submitted in the arbitration that shall be disclosed to the public through UNCITRAL. These include copies of the notice of arbitration and any response, the statement of claim and any defence, the written submissions of any disputing party, any third-party submissions (discussed below), the transcript of proceedings and any orders, decisions or arbitral awards. Certain documents, such as expert reports and witness statements, are to be made available to the public upon request of any person, with any exhibits or other documents only being made available, however, after the arbitral tribunal has consulted with the parties.
  • Submissions by non-parties: Under articles 4 and 5 of the transparency rules, an arbitral tribunal may allow submissions by third parties on an issue of fact or law in dispute in the proceeding, or from a non-disputing treaty party on the interpretation of that treaty. In deciding whether to accept such submissions, the arbitral tribunal is to take into account whether the submission is likely to assist in the resolution of the dispute and must ensure that the submission 'does not disrupt or unduly burden the arbitral proceedings, or unfairly prejudice any disputing party'. The parties to the arbitration must be given a reasonable opportunity to respond to any such submission.
  • Public hearings: Article 6 provides that all hearings will be held in public, except where the arbitral tribunal decides there is a need to protect confidential information or the integrity of the arbitral process or logistical considerations otherwise prevent a public hearing. The working group noted the importance of holding hearings in public by default, so as to avoid a situation in which parties may seek to minimise their written submissions (which are publicly available) and instead raise their arguments in closed hearings.
  • Confidentiality and exceptions to transparency: Notwithstanding the above transparency principles, article 7 provides that 'confidential or protected information' shall not be made available to the public. 'Confidential or protected information' is defined to include confidential business information, information that is specifically protected under the treaty, and any information that implicates 'essential security interests' or is likely to 'impede law enforcement'. The transparency rules provide that the arbitral tribunal may, after consulting the parties, make arrangements to prevent any such information that may be disclosed in the proceedings from being made available to the public, including redaction and closed hearings.

In addition, the arbitral tribunal has a discretion to restrain or delay the publication of information where such publication would 'jeopardise the integrity of the arbitral process'. This applies where it could hamper the collection or production of evidence, lead to the intimidation of witnesses, lawyers acting for disputing parties or members of the arbitral tribunal, or 'in comparatively exceptional circumstances'.

Summary

The transparency rules aim to strike a balance between the interests of parties to an investor-state arbitration (who have engaged a dispute-resolution process premised on consent and party autonomy) and those of interested third parties (who purport to represent broader public interests that may be implicated in investor-state disputes). On the one hand, the transparency rules generally require greater public access to key documents and hearings. On the other hand, the arbitral tribunal must protect certain confidential information, including where necessary to protect the integrity of the arbitral process. The role of arbitral tribunals will, therefore, be central to striking the right balance in any given investor-state arbitration.

Footnotes
  1. See, for example, World Investment Report 2013 published by the United Nations Conference on Trade and Development, which provides an overview of these criticisms and proposed paths to reform (see also our Focus: A different roadmap for investor-state dispute settlement?).
  2. For instance, steps have been taken in the North American Free Trade Agreement, the Chile-Australia Free Trade Agreement and certain directives of the European Commission to promote transparency in investor-state arbitrations, including through publication of documents, open hearings, and amicus curiae submissions by third parties.

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