World Bank Arbitration Body Sets Limits on Transparency

19 May 2014

By Toby McIntosh

If it’s a race to the top, it’s a very slow marathon.

Until recently, the Work Bank body that handles international arbitrations may have been, as its secretary general said, the most transparent of all the arbitration regimes.

But that claim is open to question now that the United Nations’ arbitration organization has liberalized its rules.

It took years of deliberation, but the United Nations Commission for International Trade Law (UNCITRAL) took a big step ahead in 2013 by agreeing to publish all its arbitration decisions. (See previous FreedomInfo.org report.)

By contrast, at the World Bank’s arbitration facility, the International Centre for Settlement of Investment Disputes (ICSID), publication occurs only if both parties agree.

ICSID lags behind UNCITRAL in other transparency areas, too.

No documents are released during the pendency of arbitrations and the sessions are closed-door unless mutually agreed, a rarity. There is limited opportunity for participation by non-parties. 

One arbitrator in an ICSID proceeding put the case for more transparency dramatically in a 2013 dissent, writing in part: “Transparency generates certainty; ignorance panic.”

At the moment there is no concerted outside push for more ICSID transparency, and apparently no internal ICSID plans to change.

Need for Transparency Pressed

Transparency matters, advocates say, because of the growing importance of the “investor-State” matters being arbitrated.

More than pure commercial interests are at stake when companies exercise treaty rights to resolve their disputes with governments, the argument goes. Originally, arbitrations were used mainly to address simple expropriation of property by governments, but the claims grew more sophisticated, to include challenges to regulatory actions.

Many claims now contest government policies, such as Phillip Morris’s case against Australian rules that require bland packaging for cigarettes.

These sorts of claims raise issues that are too important to be arbitrated in secret, argue transparency supporters, who are primarily nongovernmental organizations, with some governments as allies.

These investor-State disputes can arbitrated in many forums, usually before panels of three persons agreed on by the parties. Several thousand bilateral investment treaties and multilateral agreements permit the challenges and set the ground rules. Some of the treaties set more liberal transparency parameters, including the North American Free Trade Agreement.

Many investors choose ICSID as the forum, making it the leading investor-State arbitration venue. In 2013, ICSID registered 40 new cases and the website in April showed 187 active cases.

UNCITRAL Forges Ahead

ICSID’s rules are less transparent that UNCITRAL, the second largest venue.

Although the deliberations took several years, UNCITRAL approved major reforms in 2013.

In a compromise, UNCITRAL member countries created a general “presumption” that arbitration decisions and other documents will be public.

Available documents include:

– the notice of arbitration,

– the response to notice of arbitration,

– statement of claim,

– statement of defense, 

– any further written submissions, and 

– written submissions provided by third parties or non-disputing parties.

Expert reports and witness statements will not automatically be released, but may be published following a specific request. Exhibits will not be available, but the Tribunal has discretion to order their disclosure.

Confidentiality will be permitted at the discretion of the arbitrators to protect confidential information or the integrity of the arbitral process. “Even when the new rules come into force, such skirmishes are likely to continue as parties use all means available to win these high stakes disputes,” wrote British attorney Deborah Wilkie.

In addition, a public registry of documents was created and unveiled in April. And hearings will be open and transcripts made public.

All told, a major advance applauded by reformers, but not one reached easily – it took five years – and required a major compromise among the member governments.

Application Limited

The compromise substantially limiting the expansions.

The major caveat is that the UNCITRAL rules apply only to arbitrations under future treaties, unless the states or disputing parties agree otherwise, not to the several thousand  existing treaties.

Efforts continue by reformers to make the transparency rules apply to matters brought under existing treaties. They hope that some disputants will choose to use the new standard voluntarily, that some treaties will be renegotiated and that an overriding new international convention will include the transparency reforms.

Taking an optimistic views of the future, Benjamin Aronson and Sonia Farber, associates at Debevoise & Plimpton in New York, said in an article that quite a few new treaties will be replacing old ones, concluding, “The potential for the application of the rules to these treaties means they could have a greater reach than anticipated and a substantial impact on investor-state arbitration in the years to come.”

Policy Restricts ICSID Publication

By contrast, ICSID is more opaque in a variety of ways.

The highest profile deficit is the limitation on the publication of arbitration decisions.

Regulation 22 says that unless both parties consent, ICSID can’t publish decisions or other materials.

Regulation 22

Publication

(1) The Secretary-General shall appropriately publish information about the operation of the Centre, including the registration of all requests for conciliation or arbitration and in due course an indication of the date and method of the termination of each proceeding.

(2) If both parties to a proceeding consent to the publication of:

(a) reports of Conciliation Commissions;

(b) arbitral awards; or

(c) the minutes and other records of proceedings, the Secretary-General shall arrange for the publication thereof, in an appropriate form with a view to furthering the development of international law in relation to investments

The 50-person  ICSID Secretariat, based in Washington, informally prods parties toward publication. The Secretariat puts the topic on the agenda for the first meeting of each three-person arbitration panel. It seeks consent from both parties to publish after  decisions are reached. And in recent years ICSID has asked the parties to agree to publication if the decisions get published elsewhere.

The efforts appear to have been partially successful, but no statistics are available from ICSID.

Freedominfo.org tried for weeks to arrange an interview with ICSID’s Secretary General, without immediate success, but with promise of one soon. Some ICSID officials offered  help navigating the ICSID website.

FreedomInfo.org Mini-Study

A majority of decisions issued in 2013 got published, according to a FreedomInfo.org review of material on the ICSID website.

Full texts were published in seven out of 15 concluded matters.

Even when one party blocks publication, ICSID under Art. 48(4) of its rules can publish excerpts of the legal reasoning of awards, without giving names or the facts of the case. This is useful, but not enough, critics say.

In 2013, excerpts were published about three of the 15 concluded matters.

For the five other concluded arbitrations, there are no excerpts on the website although several of the decisions were issued in April and May 2013. An ICSID official said this could be either because ICSID writers are behind or because the parties have yet to resolve the disclosure question.

According to 2005 research paper by the OECD, ICSID obtained the consent of the parties to publish the award in about 50 per cent of the cases.

A Pattern in Secrecy Seen

 A yet unpublished 2103 study by three U.S. academics looked for the factors motivating secrecy and found a pattern.

A high proportion of the unpublished matters concerned industry sectors such as mining, according to Emilie M. Hafner-­Burton, Zachary C Steinert-­Threlkeld and David G. Victor.  (Their report says that “fully two-fifths of the final awards in ICSID cases remain secret.”)

Both sides have reasons for secrecy, they concluded, writing, “The consequence is that the public is least informed about precisely those cases where the public often has the most at stake – disputes over long-live, high capital investments.”

Black Market Decisions

The lack of officially disclosed documents doesn’t mean there’s a total blackout on information about the undisclosed decisions.

“Leaks” occur often.

Take for example, a case brought against a Peruvian municipality for terminating a contract with Convial Callao, a subsidiary of Argentina’s Compañía de Concesiones de Infraestructura, to build and operate an expressway between Lima and Jorge Chávez International Airport.

News about the win for Peru was reported within days in several publications that specialize in international arbitration coverage.

Neither the decision nor excerpts about the Convial Callao matter are yet available on the ICSID website, however.

One attorney active in the arbitration world estimated that about 90 percent of ICSID decisions can be found in commercial databases. Others thought that estimate too high.

There’s a thriving commercial publishing world that gets the word out to subscribers. Some law firms have their own collections and unpublished awards are shared among arbitration lawyers.

The cost of access to commercial databases is a factor that contributes to the “clubbiness” of the international arbitration bar, a disadvantage to small firms, noted a recent study.

The informal channels are nurtured by the atmosphere of official secrecy.

Concerns Prompts Project

The lack of official information weakens the ability of litigants, particularly less well-heeled ones, to participate effectively, according some observers, including law professor Catherine A Rogers, of Pennsylvania State University.

Among other things, the lack of information about decisions makes it harder to choose arbitrators, according to Rogers. She has a plan to rectify the situation by creating a new database. According to an April 2014 blog post:

Despite the importance of good intelligence in the process of selecting arbitrators, the most valuable sources of information about arbitrators are often not easily or equally available. On the one hand, ostensibly public information—such as cases, publications and articles—can be difficult to find. On the other hand, the most critical source of information—the ad hoc, anecdotal commentary practitioners collect person-to-person through individualized inquiries—is available almost exclusively to a core group of insiders who have the most direct and extensive knowledge about arbitrators.

To correct such information asymmetries, she is planning to build Arbitrator Intelligence,  “a not-for-profit online resource to collect, organize and enable sharing of the collective intelligence that will be equally accessible to the entire international arbitration community.” One collection target will be “previously rendered, but as-yet unpublished, arbitral awards.”

A pilot project to launch in June 2014 will look for such “buried treasure.”

Debate on Transparency Divides Arbitrators

Some ICSID-administered arbitration are conducted under other rules.

In one such case in 2013, Mexico failed in an effort to make public all the filings, documents, transcripts and the arbitrators’ decision. Mexico’s proposal was largely opposed by the plaintiff, Telfonica, not eager to have the matter tried in the press. The arbitration is being conducted under the Arbitration Rules of the Additional Facility, Mexico not being a party to the ICSID Convention.  The parties agreed to  make the arbitrators award and to let the Secretariat publish it. But disagreed on the other transparency issues

The arbitrators voted 2-1 to order confidentiality, but the minority opinion has attracted some attention in the arbitration world.

Dissenting panelist Ricardo Ramírez Hernández wrote that confidentiality was being applied in “a broad and unrestricted manner.”

The decision failed to strike a balance “between the interests of transparency and the interests of confidentiality,” he said.

Hernández favored openness unless requests for specific confidentiality requests were made and approved by the panel.

Hernández wrote:

Society has a right to know – of course protecting at all times information that is genuinely considered to be confidential – the actions of their governments and investors, as well as the manner in which they are defended. For this reasons, transparency cane provide legitimacy both to the claims of the investor as well as to the defence of the State. Transparency generates certainty; ignorance panic. Transparency therefore can be a means to pave the way and facilitate a better development of these proceedings and to avoid a situation in which these proceedings are judged by the public in the dark.

The tribunal left one opening for publicity, which the dissenting arbitrator called a “narrow space,” noting that it had been requested by both parties.

The order lets the parties participate “in public discussions about the general aspects related to this arbitration, provided that such discussions do not make the resolution of the dispute more difficult or become a mechanism for confrontation or an instrument to exacerbate the dispute, exert undue pressure or circumvent the confidentiality rules indicated by the Tribunal in this Procedural Order.”

ICSID Publishes Case Register

So the documents developed during the course of ICSID proceedings, such as legal briefs and witness statements, are kept under wraps.

This makes it difficult to follow the progress of cases and inhibits parties such as nongovernmental organizations from getting involved.

However, ICSID’s “case register” does provide basic information about the matters before it, and past cases.

It publishes the names of the parties and the arbitrators, something now being done by UNCITRAL, too.

However, ICSID does not summarize the claims made, the evidence or the arguments.

The ICSID staff writes brief entries about “benchmark moments” in the proceedings. (See Search Cases page, click on case number, look under the third tab, “Procedural Details.”) The staff provides about 1,400 such updates annually, according to an ICSID staff member.

But this amounts to bare bones.

“You may have some really important stuff that just stays submerged, like a witness statement about government corruption,” commented one lawyer, who like most others interviewed preferred not to be quoted by name.  

As for open hearings, ICSID rule 32(2) provides for non-party access to hearings, but the consent of both parties is required.

Using National FOI Laws Unsuccessful

Efforts to bust documents out of the ICSID files by using national freedom of information laws have been unsuccessful.

In October of 2013, the Seoul Administrative Court ruled against a group called Lawyers for a Democratic Society which had requested access to documents on a case brought against Korea by Lone Star Funds.

In November 2012, US-based Lone Star Funds had brought an investor-State case against the Korean government to ICSID. The group sought the Lone Stare Funds application from the Minister of Foreign Affairs.

Calling confidentiality “central” to arbitration proceedings, the court said disclosure could cause “a diplomatic dispute” and may significantly harm national interests, according to an article in Business Korea.

Australia in April 2014 denied access to its defense briefs filed in the Philip Morris “plain packaging” cigarette arbitration at ICSID. The concern was that their disclosure would advantage countries who have brought similar allegations before the World Trade Organization, according to a posting on the International Economic Policy and Law Blog.

Slow Marathon

Some observers think ICSID needs to move toward more transparency, but there appear to be no hints of plans to change the rules.

“The time may thus be coming for ICSID to try to reverse its general rules on these points,” according to a former long-time ICSID official, Antonio R. Parra, the author of the recently published book entitled “The History of ICSID.”

Parra, the author of the book “The History of ICSID,” encouraged further reforms in a 2013 blog post. Parra was the first Deputy Secretary-General of ICSID from 1999 to 2005 and was Legal Adviser at ICSID from 1990 to 1999.

He said ICSID should “amend its regulations and rules to provide for publication of all the main documents generated in proceedings, unless or except to the extent decided otherwise by the arbitrators, and for tribunals to have full authority to allow third parties to attend or observe hearings.”

“Such amendments would involve renewing a suggestion made by the ICSID Secretariat a decade ago regarding attendance at hearings,” Parra recalled. “The suggestion surely would now garner more support.”

Despite Parra’s suggestion of “growing pressure” for ICSID to open up, there are few signs of impending change and no pending proposals.

Another commentator, Australian lawyer and academic Leon E. Trakman wrote in 2012 that “ICSID is unlikely to be overhauled institutionally in the absence of widely endorsed motivations for such reform.”

Trakman painted a picture of multiple complications and resistance, concluding that further change is “unlikely unless there is a persistent groundswell of support arising from crises of confidence in the delivery of investor-state arbitration, not limited to the ICSID.”

New York Bar Does Study

The charge for more transparency in international arbitrations has been led by environmental nongovernmental organizations, notably the International Institute for Sustainable Development, a Canadian-based, international public policy research institute for sustainable development, and the Washington-based Center for International Environmental Law. They were deeply involved in the UNCITRAL changes.

Government positions vary, as do the opinions of private attorneys in the arbitration practice area.

A committee of the New York City Bar Association in early 2104 issued a report examining the publication practices of 10 international arbitration bodies, finding “great diversity” among their rules and practices.

The study contains no position policy, reflecting a diversity of views on the committee.

One attorney who worked on the study, Kim J. Landsman, of Golenbock Eiseman Assor Bell & Peskoe LLP, explained to FreedomInfo.org:

The major international arbitration institutions are publishing more decisions but there is no consensus on the type of information that should be disclosed (e.g., whether it is more important to publish awards or disqualification decisions, and whether the names of arbitrators should be redacted).  Moreover, the impact that increased transparency is likely to have on international arbitration is currently unknown and very controversial.

No Suggestion of ICSID Plans

There are no apparent plans at ICSID for changing transparency-related policies.

In a 2010 interview, ICSID Secretary General Meg Kinnear said, “ICSID is probably the most transparent of the arbitration institutions, particularly with the 2006 amendments.” Those reforms made it slightly easier for third parties to intervene, but did not alter transparency standards.

She added that there “are those who aren’t as keen on it, so ICSID might not be the place that they want to arbitrate, and that’s fair.” She said she wasn’t worried about parties not coming to ICSID, saying that would come as long as ICSID provides “really good and efficient service” and noting that ICSID is “probably the least expensive in terms of proceedings, and our arbitrators really are great.”

Although complimentary of Kinnear for what she has done on transparency within the constraints of the rules, none of the lawyers or transparency advocates interviewed by FreedomInfo.org were aware of any pro-transparency movement emanating from within ICSID.

The Administrative Council that governs the 150-member organization will hold its annual meeting in October.

Pros and Cons

Besides arguing that important public issues are often at stake in investor-State proceedings, advocates say more transparency will bring greater understanding about the work of arbitration bodies and improve the arbitration system overall.

Although the decisions are not precedential, access to them would assist lawyers argue cases and arbitrators write opinions, possibly providing more coherence to the decisions.

Less tangibly, it is said, more transparency would improve arbitration’s image and perceived legitimacy. Also, better information would help improve future treaties, some maintain.

Litigators who spoke with FreedomInfo.org agreed that transparency has advantages. More insight into the views of the arbitrators could help in the selection of arbitrators.

But some commentators have expressed concern that greater transparency in the investor-State context could leach into the commercial arbitrations world, where there is virtually no transparency.

Tactical, Political Considerations

Mitigating against change, some believe, is that governments and corporate plaintiffs may at times prefer confidentiality.

Another factor cited, is the vested interest of arbitration bodies, who have to consider whether requiring more transparency might drive shyer litigants to less transparency venues.

Some arbitration attorneys interviewed by FreedomInfo.org expressed concern that more transparency will burden the proceedings and increase the cost of the multi-year proceedings, which can run into millions of dollars.

Transparency, they said, creating an incentive for pleadings to grow longer and be crafted with an eye to the perceptions by the public. Although this might appear to favor the lawyers, one lawyer commented that it may be the lawyers who prefer confidentiality.

Further, more transparency may prevent open discussion between the parties, one lawyer said, making it more difficult for the parties to settle the disputes. Governments may be tactically limited, knowing that their statements might be misperceived.

2006 Reforms Limited

After 18 months of development, ICSID adopted some transparency-related reforms that became effective on April 10, 2006. (See the rules here.)

The main change was to open the door a crack for participation by third parties. Even before the rules were amended, tribunals had determined they had the inherent authority to consider such submissions. The rules made this clearer.

Regarding publication, the reforms gave a slight kick to discretion previously granted the ICSID Secretariat: to publish excerpts of the rulings that would revealthe tribunals’ “legal reasoning.” The change required ICSID to publish such excerpts “promptly.”

Regarding third party participation, the ICSID tribunals were allowed under the amended Arbitration Rule 37 to consider requests from third parties to file amicus briefs to address issues that may not adequately be addressed by the parties. The tribunals must consult both parties before ruling on the amicus request based on several tests.

Amicus briefs could be allowed, notwithstanding objections from the parties, but with some important limits. The non-party must have a “significant interest” in the proceeding, the submission must address “a matter within the scope of the dispute,” and the submission must help resolve a legal or factual issue before the Tribunal by “bringing a perspective, particular knowledge or insight” different from those provided by the parties.

Trackman termed the discretion allowed the tribunals as “decidedly limited,” going into detail about the high wall facing potential intervenors.

Attending or observing oral hearings could be permitted under amended Rule 32 (2), unless one of the parties to the proceedings objects. In such an event, apparently rare, the arbitrators must “establish procedures for the protection of proprietary or privileged information.”

A proposal allowing tribunals to open hearings over the parties’ objections was rejected.

Overall, the 2006 amendments “are, at their core, modest, incremental and conservative,” wrote Jason W. Yackee of University of Wisconsin Law School, and Jarrod Wong, of the University of the Pacific – McGeorge School of Law in a 2011 research paper.

“The final rules are also noteworthy for what they do not include: a new appeals process,” as described at the time by the law firm of Wilmer Hale.

Sergio Puig, as part of a broad 2013 scholarly article on ICSID, noted that the North American Free Trade Agreement and other bilateral treaties provide greater transparency and participation. ICSID’s reforms, by comparison, he observed, were “watered down.”

ICSID on TV?

For some arbitrations handled by ICSID, the procedural policies are set by the underlying treaties involved, some which, such as the North American Free Trade Agreement, allow for above-average transparency, including live webcasts.

So, for example, in mid-2010, ICSID for the first time webcast a hearing (in the Pac Rim Cayman LLC v. Republic of El Salvador case, ICSID Case No. ARB/09/12). ICSID based its decision on Article 10.21.2 of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA), which requires hearings to be open to the public.

The decision was discussed in a blog post by the Center for International Environmental Law (CIEL). The group advocated for more transparent mechanisms for dispute settlement generally, including webcasting, in a 2010 paper on the topic: Webcasting as a Tool to Increase Transparency in Dispute Settlement Proceedings.

“Noteworthy is that the hearing was webcast in both English and Spanish, which allowed citizens in El Salvador the opportunity to be informed of the efforts to halt harmful metals mining in their country and the private sector’s response to those efforts in their language,” the paper says. “ICSID reported that, on the first day of the hearing, there were 150 hits during the live webcast. Out of the 150 hits, 120 of them viewed the hearings in English, and 30 in Spanish. The hearings have since been archived on ICSID’s website for further viewing.”

The study concluded:

Webcasting offers an opening into the dispute settlement process that allows the public to see the individuals involved in this forum at work. Webcasting is perhaps the only means through which many will have an opportunity to see dispute proceedings. Local, federal and international judiciaries began webcasting their hearings to increase transparency and accountability, awareness and accessibility. The benefits of webcasting dispute proceedings include: more accurate reporting; time and cost savings associated with increased accessibility; content review, self-evaluation and insights; and partnerships with universities.

Although there are initial financial costs and quality concerns brought by webcasting technology, the benefits far outweigh any initial costs. Experience has shown a greater interest and understanding in the workings of proceedings since webcasting started.

Perhaps an international ICSID television channel is not likely in the near future, but the debate of transparency is expected to continue.

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ABOUT 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).
Contact: freeinfo@gwu.edu or
1-(703) 276-7748