Transparency is an emerging, though controversial trend in international arbitration.
ALTHOUGH the idea of transparency was once unfamiliar in international arbitration, recent regulations have popularized the concept. Transparency is a procedural notion that corresponds to openness, accessibility to information, clarity, and reliability of the judicial process.
Transparency is essential for good governance, justice, rule of law, and equity. When arbitrators, parties, and representatives know that they are being scrutinized 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 negative criticism. Transparency also acts as a guide for parties of a potential arbitration by providing insight on the character and expertise of arbitrators.
Advantages of Transparency
There are several advantages to transparency. Third parties, such as nongovernmental organizations (NGOs), may contribute their opinions enabling the tribunal to consider any largescale effects 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.
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. Generally, these cases concern issues of energy and natural resources, 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, if the outcome of the case will affect the public then it will “by extension have an interest in its management, including procedural time lines, evidentiary standards and expert witness statements.”
Method for Effective Transparency
In order to be effective, transparency must be observed at each stage of the proceedings. 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. These individual elements are not sufficient 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 tribunal’s own motion, documents disclosed upon request, and documents that are requested but disclosed at the tribunal’s discretion. As a whole, 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. 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.
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 Biwater Gauff (Tanzania) v. United Republic of Tanzania 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, the tribunal allowed an amicus curiae brief prepared by civil society groups. After this, transparency in arbitration became a significant trend within investor-state dispute settlement.
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. 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 negative effects 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.
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. 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. Depending on the case, either transparency or confidentiality will stand out and demand the appropriate procedural approach.
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 arbitration 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. 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-product” in 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 the case Burlington Resources Inc. v. Republic of Ecuador, 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 at issue. 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.
Regulations on Transparency
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 (“Convention”) (“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. 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.
Prospects for Transparency in the Future
Transparency is favored as it looks out for the interest of a wide population and makes the judicial system more reliable, predictable, and comprehensible to the public. 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. As practitioners head towards standardized, accountable, and predictable rules, which will increase competition among arbitration institutions, transparency rules will develop further.