Transparency in investor-state arbitration

By Ian A. Laird

The recent adoption in July 2013 by the United Nations Commission on International Trade Law (UNCITRAL) of the Rules on Transparency in Treaty-based Investor-State Arbitration marks an important milestone in the development of international investor-state arbitration. In the early days of this type of arbitration in the late 1990s, tribunals like those formed under Chapter 11 of the North American Free Trade Agreement (NAFTA) were subject to criticisms that the process was “secret’ and thus not legitimate.

The new Transparency Rules respond to many of these old critiques and UNCITRAL can be applauded for the result of its significant efforts. In particular, the Transparency Rules include provisions addressing: the free publication of information and documents submitted in an arbitration (Articles 2-3), the submission of amicus briefs (Article 4), submissions by non-disputing treaty Parties (Article 5), open hearings (Article 6), and the protection of confidential information (Article 7).

However, despite the good news, there is a counter-tension in the transparency debate in investor-state arbitration in favor of secrecy and the protection of government information. A default to confidentiality and privacy has its historical origin in the commercial arbitration roots of the UNCITRAL Arbitration Rules, but was also evident in more recent statements by the UNCITRAL members in the negotiations that resulted in the new rules.

The tension was made most evident in Article 7 of the Transparency Rules, titled “Exceptions to transparency”, and specifically in subparagraph (2) where the critical definition of “confidential or protected information” is set out. Although subparagraph (3) of the article makes clear that a tribunal has the authority to determine whether a document is confidential or protected, this is undermined by subparagraph (2)(c) which states that information of the respondent State party to the arbitration designated as protected is determined by the law of the respondent State. This is in contrast to earlier negotiation text versions of Article 7(2)(c) where such determinations would have been determined by the tribunal.

In effect, by making domestic law the governing law concerning the designation of documents as confidential, the ultimate authority to determine whether documents should be made public is effectively taken out of the hands of a tribunal. In well-developed systems of access to government information, such as with the Freedom of Information Act (FOIA) in the United States, or the Access to Information Act (ATIP) in Canada, this may not be problematic as there are domestic remedies for when government officials err too far on the side of secrecy.

The problem will be that, with States that have no such due process mechanisms, and a policy default to secrecy, Article 7 could well force tribunals to apply laws that are contrary to the very transparency objectives of the new Transparency Rules. The domino effect of this approach is that State respondents may apply the same restrictive approach to the production of documents to the arbitration itself – thus impeding transparency and potentially violating the new rules.

Some members of the UNCITRAL negotiating group believed the approach which was ultimately included in Article 7(2)(c) could be “open to abuse”. Specifically the view was offered in the October 2012 session of the UNCITRAL Working Group that “providing for mandatory application by a State of its national law in relation to information provided by it would permit a State to circumvent the object of the rules by introducing legislation precluding the disclosure of all information in investor-State disputes. In response, unanimous support was expressed for the proposition that it was not permissible for a State to adopt UNCITRAL rules on transparency and then use its domestic law to undermine the spirit (or the letter) of such rules.”

The compromise that occurred leading to the final version of the Transparency Rules Article 7(2)(c) was the inclusion of provisions in Article 1 relating to the “discretion and authority of the tribunal” to promote the transparency objectives of the new rules and provide a mechanism for balancing confidentiality and transparency. As stated in Article 1(6): “In the presence of any conduct, measure or other action having the effect of wholly undermining the transparency objectives of these rules, the arbitral tribunal shall ensure that those objectives prevail.”

It begs the question: what if a respondent State only partially undermines the transparency objectives of the rules? How such a provision will be applied in future by tribunals in the face of a respondent State intent on maintaining secrecy will be an important test of the effectiveness of the new UNCITRAL Transparency Rules.

Ian A. Laird is a Partner in the Washington, DC office of Crowell & Moring LLP and the Co-Founder and Editor-in-Chief of Investment Claims, an online law resource from Oxford University Press. He is also an Adjunct Professor at Columbia Law School and Georgetown University Law Center.

Investment Claims is a regularly updated collection of materials and analysis used for research in international investment law and arbitration. It contains fully searchable arbitration awards and decisions, bilateral investment treaties, multilateral treaties, journal articles, monographs, arbitration laws, and much more, all linked and cross-referenced via the Oxford Law Citator.

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