Transparency in International Arbitration: Desired or Necessary? -By Udoh Victoria Imoh

Introduction

Transparency is simply a social concept of being without bias.In arbitration, transparency is a necessity for the just determination of the dispute between parties. Transparency as used in social contexts is operating in such a way that it is easy for others to see what actions are performed. It implies openness, communication and accountability. However, the right means to examine the process of decision-making is transparency. In arbitration, transparency is shown in choice of arbitrators, third party funding, investor-state and relationships with clients. On a broader scale, transparency is an emerging, though controversial trend in international arbitration and usually defined as including concepts such as public access and disclosure of documents or information. The issue of transparency is critical and a debatable issue in international arbitration.[1]

Transparency as it relates to international law is broad and has three distinct dimensions. Which are: Institutional transparencythat is the level of transparency that international organisations and institutions apply to their daily activities. Legislative transparency evaluates the level of transparency of the law-making processes in international law.‘Procedural transparency concerns the way international courts and tribunals apply and enforce international legal norms.[2]

International investment law and arbitration have been criticised by important actors in the field mostly academics and non-governmental organisations (NGOs) – that regularly claim a lack of transparency. These criticisms are mainly directed at the investor-State dispute settlement (ISDS) mechanisms provided for by International Investment Agreements (IIAs), inter alia to the existing tension between confidentiality and transparency in international arbitration.[3] While legal commentators note inconsistent interpretations of international investment law standards, political and social observers condemn the legitimacy crisis of the arbitration system.This perception is particularly strong in investment arbitration where public interests are directly involved.

Transparency is essential for good governance, justice, rule of law, and equity.[4]When arbitrators, parties, and representatives know that they are being observed by the public, they proceed with caution.Particularly, when awards and decisions are not rendered behind closed doors, arbitrators are more likely to examine the case as carefully as possible to avoid strong criticism. Transparency also acts as a guide to parties of a potential arbitration by providing insight on the character and expertise of arbitrators.[5]

The Necessity of Transparency in Arbitration

Third parties, such as nongovernmental organizations (NGOs), may contribute their opinions enabling the tribunal to consider any large scale effect the case may have outside of the context of the two parties. Since transparency requires accessibility to awards, governments are guided through precedent for future legislation. Although it is controversial whether precedent in international arbitration is necessary, transparency also aids in building case law for future arbitrations. In addition, transparency in arbitration is the answer to sustainable investment through effective resolution of investment disputes.[6] In investment arbitration, procedural rules that incorporate broad transparency provisions subject both sides of an investment dispute to public scrutiny and, consequently, establish an equitable and sustainable framework for investors to seek a remedy against respondent-states. Today, procedural transparency in investment arbitration cannot be ignored. Furthermore, transparency facilitates access to justice. Access to justice is the most basic human right requirement that guarantees the public to the right of liberty in any legal system and obtain justice or justness, equity, and fairness in dispute resolution. Access to justice allows equality before the law for all citizens, like in the old saying that ‘all are equal before the law.’

Transparency in International Investment Arbitration

Transparency is mostly sought after in international investment arbitration cases resolving disputes between a state and a foreign investor that concern issues of public interest.[7]Mostly, these cases concern issues of energy and natural resources, public health, environment, and infrastructure projects. While the dispute and public interest are generally directly related, the public interest is not limited to the subject of the case if there is a foreseeable extended effect on the public. As stated in Eli Lilly & Co. v Government of Canada,[8] if the outcome of the case will affect the public then it will ‘by extension have an interest in its management, including procedural timelines, evidentiary standards and expert witness statements.’

Transparency in International Commercial Arbitration

There is no doubt that due to great public interest, transparency is essential for international investment arbitration. Nevertheless, it is not always the same for commercial arbitration where the parties have equal power and may wish to resolve disputes without initiating proceedings before state courts, so an arbitral action is brought for the purpose of protecting confidentiality. In this respect, some judicial systems, such as the UK and France, accept that tribunals have an implied duty not to disclose any documents from an arbitration proceeding without the consent of the parties or court action. Conversely, the USA, Sweden, and Australia do not oblige tribunals to observe confidentiality unless the parties agreed explicitly on such a duty. Regardless of the obligation, the extent of restriction on confidentiality should be assessed.

Publicizing names of parties, judgment processes, documents, and hearings may dampen image and reputation. When trade secrets, know-how, and intellectual property rights are at stake, confidentiality helps to limit the competitors’ access to the documents and protect this privacy.[9] For these reasons, parties cannot forsake confidentiality in international commercial arbitration even for the sake of transparency. However, these values cannot always be protected and must be balanced against procedural deficiencies. For instance, confidentiality makes it easier to conceal wrong or unethical decisions or conceal evidence. These values can be safeguarded through ideas such as work-productin the US judiciary system which is used to decide on the level of confidentiality required. Accordingly, confidentiality will be removed if the documents or information are important or if it is impossible to obtain information without undue hardship. Similarly, in Burlington Resources Inc. v Republic of Ecuador,[10] the tribunal stated that it would allow disclosure based on the duty of transparency if the moving party: (i) identifies with precision the excerpts it wishes to use, (ii) describes the specific purpose for which the identified excerpts would be put to use, and (iii) explains the reasons why such publication is deemed necessary.

In commercial cases that involve public interest, like investment arbitration, confidentiality remains critical. These disputes generally concern energy production, infrastructure services, environment, public health and safety, pharmaceuticals, and market competition. Some even believe that there is public interest in knowing whether a company operates against the law. In other words, if a company employs children, disregards employer health and safety, or behaves in a way that would affect the decisions of its consumers or investors, then this information should be disclosed. Thus, transparency is crucial in commercial arbitration as well.[11]

Transparency andThird-partyFunding

A key area in which transparency is considered by tribunals, parties and commentators is third party funding. Should the abiding principle be say to play?

Most institutional rules do not define or address third party funding, so there is a continued debate regarding the extent of disclosure obligations and the need for further regulation. Factors such as conflicts of interest, security for costs applications, cost allocations in awards and implications for confidentiality obligations tend to support the move toward transparency and disclosure of funding arrangements.

While it appears generally accepted that disclosing the funder’s identity is necessary (to determine any conflicts of interest with arbitrators or counsel) there is more debate regarding disclosure of funding terms. In South American Silver v Bolivia, Bolivia requested the tribunal to order South American Silver to disclose the funder’s identity and the terms of the funding agreement.[12]The tribunal ordered disclosure of the funder’s name but found no basis to order disclosure of the funding terms.[13]In a similar vein, Article 27 of CIETAC’s[14]new investment arbitration rules expressly permits third party funding and requires a funded party to notify the opposing party, tribunal and centre administering the arbitration once a funding agreement is entered into. The duty extends to disclosure of the fact, nature of the funding arrangement and identity and address of the funder.

In Singapore, recent reforms to the Legal Profession (Professional Conduct) Rules 2015 require practitioners to disclose to the court or tribunal and every other party the existence of any funding contract and the identity and address of any funder.[15]The 2017 first edition of the SIAC[16] Investment Arbitration Rules also expressly deal with third party funding. The tribunal may order parties to disclose the existence of funding arrangements, the identity of the funder and where appropriate, the funder’s interest in the outcome and whether the funder has committed to undertake adverse costs liability.[17]

In June 2017, the Hong Kong Special Administrative Region passed legislation to remove common law barriers to third party funding of arbitration proceedings seated in the jurisdiction, including related court proceedings, proceedings before an emergency arbitrator and mediation proceedings. Key aspects of the reforms regarding transparency include:

the exemption of confidentiality obligations[18]where information is disclosed for the purpose of “having or seeking” third party funding; and
disclosure obligations on funded parties to provide written notice of a funding agreement and funder’s identity to the arbitral body and other parties.
Essar Oilfields Services Limited v Norscot Rig Management Pvt Limited (Essar),[19]illustrates the importance of transparency of funding arrangements, given the potential cost implications. In Essar, an award which provided for recovery of nearly £2 million in funding costs under the ICC Rules was upheld. The arbitrator awarded costs of US$4 million including costs of obtaining third party funding, pursuant to section 59(1)(c) of the Arbitration Act 1996 (UK) and Article 31(1) of the ICC Rules (at the time). Section 59(1)(c) defines references to “the costs of the arbitration” as including “other costs of the parties” and Article 31(1) provided that “The costs of the arbitration shall include… the reasonable legal and other costs incurred by the parties for the arbitration”. The Court found the arbitrator clearly had the power to award costs and agreed with the arbitrator’s finding that “other costs” can include costs of obtaining third party funding, reasoning the costs relate to and are for the purpose of the arbitration.

It remains to be seen whether other arbitral institutions will follow suit, particularly in the context of commercial arbitration, and through more rigorous disclosure obligations increase transparency of third-party funding in arbitrations and increase transparency generally.

Transparency is, of course, particularly important in the field of investor-state arbitration. However, there are also moves towards a greater degree of openness in the context of international commercial arbitration. This is not simply a matter of catering for public interests; there are also human rights issues at stake whenever decisions are made behind closed doors. With confidentiality remaining a key concern for many parties, how should a balance be struck between various conflicting demands?

INVESTOR-STATE ARBITRATIONS

There have been concerns for many years about the lack of openness in investor-state arbitration. To quote from an article that appeared in The New York Times on March 11, 2001:

“Their meetings are secret. Their members are generally unknown. The decisions they reach need not be fully disclosed. Yet the way a small group of international tribunals handle disputes between investors and foreign governments has led to national laws being revoked, justice systems questioned, and environmental regulations challenged. And it is all in the name of protecting the rights of foreign investors under the North American Free Trade Agreement.”

More recently, in the face of an increasingly hostile political climate, there have been several recent initiatives in an attempt to provide more transparency, including: the United Nations Commission on International Trade Law (UNCITRAL) Rules on Transparency in investor-state arbitration 2014; the 2015 Mauritius Convention on transparency; the UNCITRAL Transparency Registry; and the International Centre for Settlement of International Disputes (ICSID) rules on confidentiality and transparency.

HUMAN RIGHTS CONSIDERATIONS ON TRANSPARENCY IN INTERNATIONAL ARBITRATION.

Article 10 of the Universal Declaration of Human Rights provides: “everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.”Article 6 of the European Convention on Human Rights is written in similar terms.

While parties who freely enter into arbitration agreements are generally deemed to have waived their right to a public hearing, nevertheless it is important to note that the basic principle under human rights law is that hearings should be held in public. Public hearings provide a guarantee of fairness and accountability.

If the system of international commercial arbitration is to preserve its legitimacy, arbitration practitioners should take heed of these basic requirements of fairness and accountability.

Any hint that the type of ‘private’ justice that arbitration provides is inferior to ‘public’ justice risks fundamentally undermining confidence in arbitration as a means of dispute resolution. Since they are sitting in private, and without having the imprimatur of the public justice system, arbitral tribunals need to do more than the courts to promote parties’ trust and confidence.

One key issue in this context concerns the quality of legal reasoning in international commercial arbitration awards. Many arbitration rules require arbitrators to give reasons for their awards, yet parties often complain that the reasons given by arbitrators are insufficient. There are also concerns that arbitrators can sometimes take too long to issue their awards.

Part of the reason for such concerns may be that arbitral awards are generally perceived to be confidential, and thus arbitrators may perceive that they are unlikely to be exposed to the glare of public criticism.

For the sake of the legitimacy of the system, such attitudes need to change. One welcome attempt to prevent such complacency on the part of some arbitrators is the ‘Arbitrator Intelligence’ project founded by Professor Catherine Rogers, the stated aim of which is “to promote transparency, fairness, and accountability in the selection of international arbitrators by increasing and equalizing access to critical information about arbitrators and their decision-making”.

3.0. Elements of Transparency in Arbitration

For effectiveness, transparency must be observed at each stage of the proceedings.[20]Transparency starts with informing the public about the presence of the dispute. Next, the public must be provided access to procedural and written documents, followed by open hearings and an opportunity for third party participation as amicus curiae where necessary. These individual elements are not enough to establish transparency on their own, thus they must be taken as a whole.

Existence of the Dispute
The first step towards transparency is informing the public about the existence of the dispute. Apart from ICSID and NAFTA arbitrations, most arbitration rules do not require publicizing disputes. The most important reason for broadcasting disputes is to enable beneficiaries and amicus curiae to be involved.

Disclosure of Documents
Next, the parties must disclose documents including petitions, witness testimonies, other evidence, and awards. The disclosure of documents and procedures may change depending on the applicable rules. However, in general there are three categories: Documents that are disclosed by the tribunals’ own motion, documents disclosed upon request, and documents that are requested but disclosed at the tribunal’s discretion. There is criticism that transparency conflicts with the principle of confidentiality; however, disclosure is the stage of transparency where this conflict is seen the most.

Public Access to Hearings
Public access to hearings is important to monitor adjudicators who could potentially abuse power.[21]The tribunal may decide a hearing should be open that would not be public under normal circumstances. Some rules such as the UNCITRAL Arbitration Rules require hearings to be confidential unless otherwise agreed to by the parties. This causes transparency and confidentiality to become at odds. Although open hearings are necessary to reach transparency, if confidentiality outweighs public interest, or for exceptional logistical reasons, the tribunal may decide to move forward with closed hearings to protect the integrity of the proceedings.

Participation Rights
With increased transparency, non-party participants such as NGOs support the tribunal by giving their opinions on important matters of public interest. In this regard, the ICSID case of BiwaterGauff (Tanzania) v United Republic of Tanzania[22]is significant because, for the first time, the ICSID tribunal accepted opinions as amicus curiae from NGOs concerning the environment, human rights, and sustainable development. The case involved the privatization of water and other infrastructures which is an issue of public concern. Five NGOs stated that access to clean water is a human right and allowing privatization of water infrastructures and other public services would be detrimental to developing countries. The tribunal accepted to hear the NGOs submissions which prevented not only a local but global problem through, in other words, transparency.

In the case Methanex Corp. v. United States of America,[23]the tribunal allowed amicus curiae brief prepared by civil society groups. After this, transparency in arbitration became a significant trend within investor-state dispute settlement.

Confidentiality Issues
Parties may choose arbitration over other methods of dispute resolution due to the confidential nature of arbitration. Historically, arbitration is based on confidentiality that is an inseparable part of the procedure.[24] This makes the necessity of transparency in arbitration a lot more controversial. Confidentiality provides the continuation of business relationships, creates an environment where parties can present their claims and responses comfortably without scrutiny from the media or public eye, and prevents competitors from accessing documents.Moreover, precedent is not always welcomed in international arbitration due to the possible effect prior cases can have on the present case. Ultimately, confidentially aids in preventing this type of potential negative effect.

The English Court of Appeal recognized the issue of confidentiality in the case Dolling-Baker v Merrett and stated that the tribunal has an implied duty not to disclose documents to be used in the arbitration unless it is necessary for fair disposal of the action.However, the tribunal also determined that confidentiality was not an essential part of investor-state arbitration and limited confidentiality to only the hearings conducted during the arbitration.[25]

Although it can be thought that transparency and confidentiality are two opposing concepts, this is not entirely true. Some scholars even argue that absolute confidentiality is impossible to achieve because witnesses are free to disclose information from their personal knowledge to third parties, and the awards may come before a court or are subject to judicial review.[26]The French courts have supported the idea that disclosure and confidentiality can co-exist in arbitration,demonstrating that transparency and confidentiality are tools that will support each other.[27] Depending on the case, either transparency or confidentiality will stand out and demand the appropriate procedural approach.

4.0 Regulations on Transparency

In an increasingly economically interdependent world, the importance of an improved legal framework for the facilitation of international trade and investment is widely acknowledged. The United Nations Commission on International Trade Law (UNCITRAL), established by the United Nations General Assembly by resolution 2205 (XXI) of 17 December 1966 (see annex I), plays an important role in developing that framework in pursuance of its mandate to further the progressive harmonization and modernization of the law of international trade by preparing and promoting the use and adoption of legislative and non-legislative instruments in a number of key areas of commercial law.

Transparency is provided in various regulations. States may include transparency provisions in their investment agreements, parties may choose arbitration institutions whose rules contain transparency provisions, or states may conclude an agreement amending previous investment agreements to include transparency provisions as seen in the UNCITRAL Convention on Transparency Rules. The Convention stipulates application of the Rules on all investment treaties of the party states. Turkey has not signed the Convention which is ratified only by Canada, Mauritius, and Switzerland.

The new regulations on transparency concern investment arbitration rather than commercial arbitration. The Rules are among the new guidelines on this matter.[28] The Rules regulate notification of the parties (Article 2), disclosure of documents (Article 3), participation of third parties (Article 4 and 5), and open hearings (Article 6). The Rules are applicable to investment treaties concluded after 2013. In order to define the scope of application of the Rules, states that are party to UNCITRAL concluded an agreement in Mauritius. Although many states are cautious about its implementation, states like China have declared their full support of the Rules. In addition to the Rules, bilateral investment treaties (BITs) have also been revised to include transparency provisions. Turkey agreed to apply the UNCITRAL Transparency Rules on BITs with China and Columbia. Treaties of the USA and Canada with other states are further examples of application of transparency rules in BITs. Following this, the ASEAN Investment Treaty in 2009, NAFTA in 2001, and ICSID in 2006 accepted new provisions for transparency.

5.0 Conclusion

The issue of transparency in arbitration, whether domestic or international cannot be stressed. It makes the arbitral proceedings and judicial system more reliable, predictable, and comprehensible to the public, among others. Therefore, we observe that transparency will be promoted more in future international arbitrations. Without a doubt, transparency rules will be applied widespread. However, confidentiality issues should not be disregarded and, when necessary, should be activated.[29]It may be sufficient to end this article with a quotation from Professor Rogers, who wrote an article in 2006 on Transparency in International Commercial Arbitration:

“… Having opted for a system that aims to bring a rule of law to international commercial disputes, parties and those providing legal services cannot pull the curtains around the system and turn out the lights. Transparency is an inherent feature of the rule of law. If international commercial arbitration’s users want the benefits of a rule-based system, they cannot reject the transparency that comes with it.”

Udoh Victoria Imoh, ACArb

EMAIL: [email protected]

Associate, Nigerian Institute of Chartered Arbitrators.

[1]NeumanTad Simms B. Transparency kin International Arbitration. Cambridge University Press, Cambridge. Pg. 436-437 (2013).

[2] Claudia Reith, Enhancing Greater Transparency in the UNCITRAL Arbitration Rules. A futile attempt? 2.Y.B on International Arbitration, 297-300 (2012)

[3] Natalie Limbean& LorettaMalintoppi. Living in Glass Houses? The Debate on transparency in International Investment Arbitration. BCDR, International Arbitration Review. Volume 2, 31-58 (2015).

[4]AvinashiPoorooyee& Ronan Feehily. Confidentiality and Transparency in International Commercial Arbitration: finding the right balance. Harvard Negotiation Law Review, 275-324 (2017) at 276

[5]Poorooyee, supra

[6]Donggen XII &Huiyan Shi. Dilemma of Confidentiality in International Commercial Arbitration. (2009)

[7] Cindy G. Buys. The Tension between Confidentiality and Transparency in International Arbitration. Review of International Arbitration, 121- 138(2003) at 138

[8] Eli Lily &co v Government of Canada, NAFTA Case of 13June 2013.

[9] Christopher Boog & James Menz. Arbitrating IPO Disputes, the 2014 WIPO Arbitration Rules, 24 Arbitration Study 105. (2015)

[10]Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. Arb/08/5 of 7th February 2017

[11] Cindy Buggs, Supra.

[12] South American Silver Limited v Plurinational State of Bolivia, (PCA Case No. 2013-15), Procedural Order No. 10, (11 January 2016) at [13].

[13] PWC International Arbitration Damages Research 2017 Update, December 2017 (https://www.pwc.co.uk/forensic-services/assets/pwc-internationalarbitration-
damages-research-2017.pdf).

[14] China International Economic and Trade Arbitration Commission.

[15]Legal Profession (Professional Conduct) Rules 2015, 49A (https://sso.agc.gov.sg/SL/LPA1966-S706-2015#pr49A-)

[16] Singapore International Arbitration Centre.

[17]Legal Profession (Professional Conduct) Rules 2015, Rule 24(1).

[18] Pursuant to the Arbitration Ordinance (Cap 609)

[19] [2016] EWHC 2361 (Comm.).

[20]Dollings-Baker v Merret (1990) 1 WLR 1205, 1213 (K.B)

[21] Catherine A. Rogers. Transparency in International Commercial Arbitration. Pann State law library, 1301-1337 (2010) at 1304.

[22]BiwaterGauff (Tanzania) v. United Republic of Tanzania, ICSID Case No. Arb/05/22 of 29th September 2006.

[23]Methanex Corp. v. United States of America, Final award of the Tribunal of 7th August 2005.

[24]AvinashiPoorooyee& Ronan Feehily. Confidentiality and Transparency in International Commercial Arbitration. Harvard Negotiation Law Review, 275-324 (2017) at 278.

[25] S.D. Mayers Incorporation v Government of Canada, NAFTA Case of 13th May 2000.

[26] Cary. B. Burn Chap 9: Procedural issues in International Arbitration, International Cases and materials, 177-870 (2015) at 829.

[27] Christopher Henkel. The Work Product Doctrine as a means towards a judicially enforceable duty of Confidentiality in International Commercial Arbitration. 37 N.C.J of International Law 1059(2012).

[28] UNCITRAL Rules of Transparency in Treaty-based Investor State Arbitration, United Nations, New York. 2014 signed in 2013, ratified in 2014.

[29] Hew R, Dundas. Commentary, Confidentiality in English Arbitration, the Final Word? Emoot v Michael Wilson & Partners Ltd, 74(4) Arb 458 (2008)