Trade Dispute Body Adopts Limited Transparency Rules

7 January 2014

By Toby McIntosh

New transparency rules will go into effect April 1 for the world’s second largest arbiter of international investment treaty disputes, but their impact will be minimal.

The rules will apply only to the disputes under future treaties, not the 3,000 existing treaties.

This situation could change if an overarching treaty on transparency is signed, but that remains an open question.

Nevertheless, the rules adopted in 2013 signal a major shift in philosophy for the United Nations Commission for International Trade Law (UNCITRAL), which is a widely used source of rules for the arbitration of disagreements between investors and national governments and between private parties.

Despite the gaping hole in the new transparency rules, the optimistic view is that they serve a “norm-creating function.”

Three years in the making, the new rules are intended to expand transparency for so-called investor-State disputes that arise under the some 3,000 international investment treaties. In such treaties, states offer investors the option of taking disputes to international arbitration.

The numbers and significance of investor-State arbitrations has been growing. There were a record 62 in 2012, in all venues, and about 500 over the 15 years they have been in existence. The average total cost of such litigation is $8 million. Originally designed to protect against things such as uncompensated nationalization, the treaties have increasingly been used to challenge national policies, such as when Philip Morris objected to Australia’s rules on cigarette packaging. The new rules apply to investor-State disputes, not to private contract arbitrations.

UNCITRAL is the second most frequently used forum, the largest being one administered by the World Bank, the International Centre for Settlement of Investor Disputes (ICSID), and there are several others. The others are less transparent, observers said.

Major Changes Made

Under the old UNCITRAL rules, all documents were confidential. Hearings were closed to the public. Even the existence of cases was hard to figure out. The ultimate release the rulings by the three-arbitrator panels was problematical. This confidentiality could be waived, but only if both parties agreed to do so.

These new rules ex ante will remove that discretion.

Significantly, a general “presumption” has been created that all documents will be public. A public registry of documents is to be created. Hearings will be open. Arbitration decisions will be public.

They become effective April 1, 2014.

Rules Limit Coverage

However, there are some significant limitations:

–         Most notably, the new rules only apply to arbitrations pursuant to future investment treaties unless various possible steps are taken to make them apply.

–         Notices of Arbitration, the initial document describing the allegations, will only be released after an arbitration tribunal has been constituted to hear a case.

–         Exemptions are provided to protect confidential information or the integrity of the arbitral process. Governments will have complete discretion to restrict disclosure of information deemed to affect national security.

New Rules Heralded

“Transparency lies at the very foundation of good governance,” said Michael Schöll, UNCITRAL chairman, was quoted as saying in a UN summary.

The views of government representatives on the panel radically differed, Schöll observed, making the issue a highly sensitive one. The new rules were developed by “Working Group II.”

The final rules, he said, acknowledged that the general public is a fundamental stakeholder in investor-State disputes and that arbitration would now be generally open to the public.

After three years in development, the rules were approved in July by the UNCITRAL Commission and in September by the UN General Assembly. The recommendations are contained in the Report of the United Nations Commission on International Trade Law on the work of its forty-sixth session (document A/68/17). UNCITRAL was established in 1966 and has 60 member governments.

The new rules will provide for “a significant degree of openness,” according to a summary and a detailed report (including the text and commentary) written by Lise Johnson, a lawyer who followed the negotiations closely. Johnson is Senior Legal Researcher, Investment Law and Policy, Vale Columbia Center on Sustainable International Investment, Columbia Law School – Earth Institute. However, she expressed disappointment with limited coverage of the rules, a compromise result.

Another lawyer who evaluated the rules, Clayton Utz, wrote that the increased visibility of UNCITRAL actions “will constitute an advantage” by assisting other investors in determining their rights. Publication may also encourage consistent decisions and reasoning in arbitral awards, he said.

Roots of Change, Rationale

The advantages of more transparency have been debated for many years, dating back to at least 2007.

Environmental groups have been major supporters of more transparency, as seen in a 2008 paper by the Washington-based Center for International Environmental Law and the International Institute for Sustainable Development, based in Winnipeg, Canada.

In 2010, an Argentinian diplomat, Ignacio Toterola, summed up the rationale. Argentina was an early proponent.

Access to decisions, Toterola wrote, creates a body of case law “that brings more certainty” to the arbitration system, “precludes future inefficiencies and contingencies for the parties involved” and “raises the professional standards to be met by the arbitrators in their decisions.” With the rise of cases that potentially affect the public interest, he said, UNCITRAL transparency should reflect national transparency and participation laws.

“Another motivation for promulgating rules for better transparency is the benefit of allowing third party participation in the arbitration process,” wrote Julie Lee in a 2013 article in the Northwestern Journal of International Law and Business with detailed background on the subject.

A broad review of transparency and international investment law (IIL) by Julie A. Maupin in 2013 concluded that “many corners of IIL regime remain shrouded in darknesss.”

Scope of Coverage Still a Question

A key future question will be the coverage of the rule, now quite limited.

As it stands, parties to disputes involving existing treaties would need to “opt in” for the new transparency rules to apply.

The opt-in provision was compromises struck late in the negotiations.

The deal “may explain why some skeptics of greater openness agreed to relatively strong transparency rules,” wrote Luke Eric Peterson of Investment Arbitration Reporter in February 2013 as the working group was negotiating.

In another wrinkle, it is still possible for new treaties to be written in such a way as to use the old, less transparent standard.

Getting an agreement was not easy. A block of states, informed source told, did not want the rules to be any more than guidelines. Some wanted an opt-out provision. European countries wanted to pick and choose. Peterson also reported that the Working Group rejected a proposal to let arbitrators decide through “dynamic” interpretation of treaty language if the transparency changes apply.

In general, the supporters of transparency were Argentina, the United States, Canada, Australia, Norway and South Africa, according to published reports and observers. Singapore rallied the opponents, who also included Cuba and Venezuela.

Treaty Could Be a Solution

A number of avenues exist to bring about a wider application of the new transparency rules.

One option is for governments to sign a new treaty, an international convention on transparency. Signatories would agree that the transparency rules would apply to all investor treaty arbitrations. Non-signatories would not be need to conform. Potentially the treaty would apply to all the arbitration bodies, not just UNCITRAL.

UNCITRAL’s Secretariat has developed a draft text of such a convention to be worked on by Working Group II later this year.

Another possibility is for individual states to declare that they want to apply the new rules on transparency to all or some of the pre-April 1 treaties. This could be influential, but not dispositive if the other party disagreed.

Renegotiation of the thousands of existing treaties also is a possibility, but is not considered an attractive idea. Peterson reported in February that one government source said bilateral renegotiations could be slowed or complicated by other legal issues.

There is a possibility that the new rules could be used voluntarily, but observers re unsure whether this will happen. The World Bank’s ICSID and another body, the Permanent Court for Arbitration, has said the new rules could apply to arbitrations under their auspices, according to Johnson.

UK attorneys Deborah Wilkie and Herbert Smith Freehills speculated that “it will be interesting to see whether this increased transparency has any impact on the way that the parties draft their pleadings, or perhaps to limit the documents they refer to, in order to avoid potential disclosure requests.” They praised the rules as “a step in the tight direction” and made other comments on their implications in an article, “UNCITRAL Unveils New Transparency Rules – Blazing a Trail Towards Transparency in Investor-State Arbitration?”

“It also remains to be seen whether the increased publicity will have an impact on a party’s decision whether to pursue an investment claim under a treaty (where the Transparency Rules apply) or under contract, where there will be no such disclosure requirements,” according to Wilkie and Freehills.

Exemptions Created

Most arbitration documents will be made public, but there are a variety exceptions.

Early in the process, release of the Notice of Arbitration will be delayed until a tribunal is convened. The notices typically describe the complaint in skeletal terms. In the meantime, the UNCITRAL secretariat has been tasked with issuing a few basics: the names of the parties, the economic sector involved and the treaty involved.

Release of the Notice of Arbitration could be done voluntarily. The working group was apparently was concern about mandating the release of a document that could contain confidential information.

As the process proceeds, expert reports and witness statements will not be automatically released. They can be requested, however, and must be released.

The release of exhibits will be discretionary with the tribunal.

In addition, there are some general exemptions.

“Confidential business information” is protected. So too is information protected from disclosure under the rules of the respondent’s country.

One unusual provision (Article 7 (4), says that if a tribunal rejects confidentiality (redaction) for certain information, the document can be withdrawn.

States may protect information that the disclosure of which they judge would be “contrary to its essential security interests.”

The “self-judging” exemption was “strongly opposed” by some governments, according to a report about October 2012 meetings by Johnson in Investment Treaty News, which did not name the countries.

UNCITRAL plans to establish a “repository” for all documents, but is some uncertainty about whether resources will permit its creation on time.

Rights of Third Parties

The new rules provide opportunities for third parties to make written submissions to a tribunal “regarding a matter within the scope of the dispute.” The changes are “not much of an improvement,” Johnson said, but do provide some additional guidance.

Among other things, those seeking to intervene will need to describe themselves and state the nature of their interest in the arbitration. A third party organization would need to describe its membership, general objectives and any parent organization that controls it. Certain information about financial backing also is required. Connections with the parties would need to be disclosed.

The tribunal has some leeway on whether or not to accept third party submissions and in the past have done so with some regularity.

“Non-disputing” parties to the treaty” – other governments – may be invited to make submissions. Voluntary submissions on issues of treaty interpretation would have to be accepted by the tribunal, subject to a few provisos. But not all involvement would be accepted, largely to discourage countries from advocating for corporations from their countries.

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Filed under: IFTI Watch


In this column, Washington, D.C.-based journalist Toby J. McIntosh reports on the latest developments in information disclosure in International Financial and Trade Institutions (IFTI).
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