UNCITRAL unveils new Transparency Rules for investor-state arbitrations

On 11 July 2013, the United Nations Commission on International Trade Law ("UNCITRAL") adopted new rules on transparency in investor-state disputes conducted under the UNCITRAL Arbitration Rules, to come into effect from April 2014. 

The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (the "Transparency Rules") are due to come into force from 1 April 2014, and will give (subject to certain exceptions) public access to documents generated during treaty-based investor-state arbitrations brought under the UNCITRAL Arbitration Rules, as well as public access to hearings of such disputes and the ability for third parties make submissions.  A new paragraph has also been added to the 2010 UNCITRAL Arbitration Rules, providing for the Transparency Rules to form part of the UNCITRAL Arbitration Rules, also with effect from 1 April 2014.

Investors with potential BIT claims should be aware that the introduction of the UNCITRAL Rules on Transparency could materially change the nature of the dispute resolution clauses in BITs or other investment treaties which provide for UNCITRAL arbitration, making them more open to public participation and scrutiny.  Some level of transparency is already available to investors using the ICSID Rules since these were amended in 2006 to allow for the interested third parties to intervene in arbitral proceedings at the discretion of the tribunal and to attend hearings, although not automatically to see documents created as part of the proceedings.

The new UNCITRAL Rules on transparency seek to balance the public interest in transparency in treaty-based investor-State arbitration on one hand, and the disputing parties' interest in a fair and efficient resolution of their dispute on the other.  This responds to pressure from civil society stakeholders who consider themselves affected by decisions in this sphere. It is also a response to the policy adopted by certain States (i.e., Canada and the U.S.) which strongly advocate transparency. 

Given the role afforded to the Tribunal under these Rules on transparency, it will be interesting to see what weight Tribunals give these potentially competing interests, and whether the potential publicity has any 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.

What kind of disputes will be affected by the new Transparency Rules?

The Transparency Rules only apply to treaty-based investor-state disputes, so will not affect commercial arbitrations or state-to-state arbitrations conducted under the UNCITRAL Rules.  Nor will they apply to investor-state disputes brought on the basis of a contractual claim (where, for example, there is an UNCITRAL arbitration clause in an investment agreement). 

The Transparency Rules come into force on 1 April 2014.  Whether they apply to disputes will depend on the date of the treaty on which the claim is based:

• For claims brought under a treaty which was concluded after 1 April 2014: The Transparency Rules will apply, unless the parties to such treaty have expressly opted out.
• For claims brought under a treaty concluded before 1 April 2014: the Transparency Rules will only apply (1) on agreement of the disputing parties; or (2) if the parties to the treaty have agreed after 1 April 2014 to their application – effectively requiring an 'opt-in' to the transparency provisions.  

The Transparency Rules will also be available for use in investor-state arbitrations initiated under other arbitration rules, or in ad hoc arbitration proceedings.

What information will be made public?

The Transparency Rules provide for public access to the majority of documents generated during arbitration proceedings, as well as public access to hearings, subject to certain exceptions aimed at preserving confidential or protected information and preserving the integrity of the arbitral process. 

Information which will be made available, to the public, will include:

• Once a dispute is commenced, the names of disputing parties, the economic sector involved and the treaty under which the claim is made;
• Various documents created by the parties during the arbitration: the notice of arbitration, response to notice of arbitration, statement of claim, statement of defence, together with any further written submissions.  Expert reports and witness statements (excluding exhibits) will not automatically be released, but may be published following a specific request;
• If available, a table of exhibits to the parties submissions, expert reports and witness statements (but not the exhibits themselves);
• Any written submissions provided by third parties or non-disputing parties to the relevant treaty;
• Transcripts of hearings (which are required to be open to the public, except where there is a need to protect confidential information or the integrity of the arbitral process, in which case part of the hearing may be held in private);
• Orders, decisions and awards of the Tribunal.

Some of these will only be made available upon specific request.  The information made publicly available under the rules will be stored electronically in a single central repository, maintained by UNCITRAL.

Will disclosure always be required?

The Transparency Rules do give arbitral tribunals discretion to keep some documents confidential and there are two key exceptions to transparency:

• Confidential or protected information: including confidential business information, information protected against being made public under the treaty or under the law of the respondent state, or any other applicable laws, and information the disclosure of which would impede law enforcement;
• Integrity of the arbitral process: where making information available to the public could hamper the collection of evidence, result in the intimidation of witnesses/counsel or members of the Tribunal.

In addition to granting public access to arbitral documents and hearings, arbitral tribunals may also allow submissions regarding matters within the scope of the dispute from (1) non-disputing parties to a treaty and (2) third persons who are not a disputing party nor a non-disputing party to the treaty, after consultation with the disputing parties, who are also to be given a reasonable opportunity to comment on any such submissions.

What does this mean for investors?

Investors with potential BIT claims should be aware that the introduction of the UNCITRAL Rules on Transparency could materially change the nature of the dispute resolution clauses in BITs or other investment treaties which provide for UNCITRAL arbitration, making them more open to public participation and scrutiny.  This can start by the existence of the arbitration itself being made public, which might not necessarily be expected under existing practice.  

To address concerns raised about the applicability of the Transparency Rules to existing treaties, UNCITRAL has indicated that it will prepare a draft convention in relation to the application of the Transparency Rules to such disputes.  Given that almost 3000 investment treaties are already in place, it is hoped that this convention will bring further clarity to the application of the Transparency Rules in what is likely to be a common situation. It also deals with the fundamental problem that the UNCITRAL Working Group II faced which is that it is very difficult (if not impossible) for a set of arbitration rules to change the application of international law.

Christian Leathley, partner at Herbert Smith Freehills in London, was involved in drafting the new rules as the International Bar Association’s representative to the UNCITRAL working group. , In a comment to Global Arbitration Review he said: “This is a welcome development and the product of tremendous work on the part of many member states and observers, and notably the secretariat of UNCITRAL. The sessions of the working group were a fascinating example of the United Nations trying to organise a consensus on some very sensitive legal and cultural issues.

It is a relief that a benchmark has now been set under the auspices of UNCITRAL, although the on-going work on the convention is critical to the broader application of these transparency rules under many existing treaties.”

A copy of the Transparency Rules is available on the UNCITRAL website here.  

For further information, please contact Christian Leathley, Partner, Deborah Wilkie, Senior Associate, or your usual Herbert Smith Freehills contact.