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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
This topic brings to mind a visit some years ago to Antonio Parra, then Deputy Secretary-General at ICSID, in Washington. There was some consternation within ICSID at that time, due to criticism in the American media of the way in which arbitration tribunals under NAFTA were operating.
It started with a 2002 piece on a talk show on the US Public Broadcasting Service (PBS) by Bill Moyers called "Trading Democracy".1 The report focused on NAFTA and the use of Chapter 11, described as "an obscure section", which it was alleged was being used by foreign multinational corporations to "attack public laws that protect our health-and our environment-even to attack the American judicial system". This was described as being "like a sophisticated extortion racket" in which "secret NAFTA tribunals can force taxpayers to pay billions of dollars in lawsuits filed by [foreign] corporations against the United States", with "claims being decided not in open court but in what has become a system of private justice, in secret tribunals".
The PBS piece was prompted by the well-known Methanex and Loewen cases.2 Of course, these were not the first claims under Chapter 11 of NAFTA. Their distinguishing feature, however, was that they were brought against the United States, which, in the journalist's view, made them an affront to the American judicial system.
Methanex and Loewen cases
This broadcast was followed a few months later in April 2002 by a Business Week article entitled "The Highest Court You've Never Heard Of ".3 Again discussing Loewen , the piece described how the Canadian investor went to "an obscure threejudge panel" whose decision cannot be appealed. It suggested that, due to some NAFTA "fine print" (a reference to Chapter 11), this case and others were going through a "little-known and highly secretive process".
Loewen
It is easy to understand why ICSID would be concerned at this media outcry over private arbitration tribunals holding hearings behind closed doors and rendering awards deciding disputes worth millions of dollars, on matters of public interest such as health and the environment, between private investors and state parties. Resolving such disputes is, after all, one of the central purposes of ICSID as an institution.4
The concerns expressed in these media pieces about the lack of transparency have been addressed to some extent by ICSID. Its Arbitration Rules were amended in 2006 in order to provide some scope for amicus briefs and public hearings,5 thereby meeting to some extent at least the demands for greater openness in proceedings and participation by interested third parties representing the public. Some hearings are now held in public and can be accessed on the Internet.6 Moreover, the fact that ICSID awards are so often made public (and even those that are not formally accessible through ICSID online are often circulated widely among practitioners in the field) means that at least it cannot be said that the decisions reached and the reasoning of the tribunals involved are kept secret.7
Of course, investment arbitration such as that conducted under the auspices of ICSID might be said to warrant greater transparency, given that investors seeking to hold host states or state entities to account potentially raises issues of concern to a broader audience than simply the parties to the dispute. These cases often involve compliance by the state with its public international law obligations and may impact on its exercise of sovereign powers such as the ability to regulate. Moreover, any resulting award made against a state or state entity is likely to impose demands on the public purse.
Is it right, though, to regard this shift towards greater transparency in investment arbitration as being simply driven by its particular characteristics? Or do at least some of the concerns raised apply equally to commercial arbitration? While it may be easy to detect the public interest involved in a private tribunal ordering a government to pay hundreds of millions of dollars in compensation from taxpayers' monies, the same applies to state-owned enterprises and corporate entities in which the public retain a substantial interest through government subsidies, because ultimately it is the public that will likely foot the bill. Even if confined to state parties, why should the transparency deemed appropriate in an ICSID case not apply equally to those conducted under other institutional or ad hoc rules?
This issue has been toyed with,8 but the fact remains that the greater openness in proceedings and participation of third parties introduced by ICSID has not been adopted more broadly by other institutions, even in investment arbitration cases involving states. Rather, arbitration involving state parties conducted under other institutional rules or the ad hoc UNCITRAL Rules usually remains confidential unless both parties agree on disclosure, even where matters of public interest are at stake.9
The traditional response to criticism of this state of affairs is a staunch defence of the right of parties to choose to have their dispute heard in private and to keep the result to themselves, whether or not they are state parties. Indeed confidentiality is traditionally considered a defining characteristic of arbitration in many jurisdictions. Since the Australian ruling in Esso v. Plowden,10 it has been clear that it would be wrong to assume that approach is universal, yet it is not obvious why an arbitration conducted in London should be confidential whereas one conducted in Sydney need not be. Moreover, given the jurisdictional constraints upon ICSID arbitration, it can be no answer to suggest that the possibility of choosing the more transparent regime suffices to address any concerns.
There are a number of reasons why making awards publicly available is said to have merit, including the discipline that it imposes on the decision makers, the contribution that tribunals' decisions can make to the development of the law (particularly in those areas of the law where the referral of disputes to arbitration has become so commonplace as to effectively stymie its development through the courts) and, of course, the same policy concerns regarding transparency of the justice system that led to national courts being opened up to the public: justice must not just be done, but must be seen to be done.
The question therefore arises whether arbitration rules and institutions ought to take a more transparent approach, for example to reverse what may be the presumption of confidentiality, so that it applies only when the parties, or perhaps just one of them, affirmatively seeks it. It is noteworthy in this regard that, while the publication of awards is far from automatic or systematic, the reality is that awards regularly do appear in the form of sanitized case reports and that organizations like ICC play a role in that process. It is also far from unusual for the result of socalled confidential arbitrations to be discussed in trade and industry publications. Moreover, whether or not it is a breach of a party's confidentiality obligations, either as a matter of the curial law of the arbitration or the institutional rules applicable, the remedies available for disclosure of an award are largely ineffective: the damage is done on publication, and proof of monetary loss as a result of publication is usually extremely difficult. That is perhaps why, in some cases, one sees disclosure with no effective sanction, however much the other party objects.
Insofar as awards are concerned, it is perhaps legitimate to ask whether awards should be kept secret even in purely commercial cases or whether institutions should make them available, making it clear in their procedural rules that this will be the case absent affirmative objection by the parties.
Whether or nor arbitration awards are to be kept secret, can it ever be defensible for arbitration to be conducted without procedural transparency? That is perhaps where the role of the institutions comes most sharply into focus. They are often called upon to perform a number of key functions in the arbitration process, yet precisely how they operate and on what basis is not always clear.
There are many situations where demands for transparency in the context of arbitration institutions arise, but this article will focus on three in particular, namely the selection of arbitrators, the determination of challenges to arbitrators and the scrutiny of and amendments proposed to draft awards.
It has often been said that the selection of the tribunal is probably the most important aspect of the arbitration procedure. It frequently falls to the nominated institution to make the appointment, particularly if a party fails to make an appointment, yet how this is done is not always clear. For many institutions, there seems to be a private list-real or notional-of those who are considered suitable for selection, but exactly who is on the "list" may not be publicly disclosed.
The lists of arbitrators of some institutions are of course made public, but then there may be lists within the list. In particular, there may be a broad list of approved arbitrators that parties can see, but the list of those whom the institution would actually appoint may be rather shorter. Even an institution like ICC, which seeks input from national committees, cannot be said to be entirely transparent about who gets nominated by the national committees and why. Ultimately decisions on appointments are made by the ICC Court, but the rules expressly provide that the reasons for the decision shall not be communicated.11
So complete transparency is clearly missing, but does it matter? To begin with, it must be borne in mind that a decision about who to appoint as arbitrator is not a scientific matter. It involves a judgment as to who would be suitable in all the circumstances, including the subject matter of the dispute, the nationalities of the parties, the previously selected arbitrators, the geographical location of those involved, the seat of the arbitration and so on. Given the potential reputational consequences for an institution of its appointments, there is some sense in allowing the institution to be free to exercise its judgment as it deems appropriate.
Furthermore, in many cases where an arbitrator is appointed by the institution, the parties are less concerned with getting a particular individual than with having someone else make the decision on their behalf, either because they trust the institution to make a more informed choice or because it insulates them to some degree from criticism if it turns out to be a poor choice. In other words, the parties primarily want a third party to choose for them, and opening up the process would arguably lead to more challenges to the way in which that process operates.
Another factor is that, in practice, parties can, if they wish, have some input in the process. Most institutions will allow parties to make representations as to the characteristics they would wish the institution to take into account when making the appointment, such as legal background, nationality, language capability and so on.
In short, while there could undoubtedly be greater transparency in the appointment process, there are cogent reasons for maintaining the current rather more opaque practice. The system does not appear to be broken, and any attempt to fix it may itself cause problems, such as introducing a greater propensity for challenges. Ultimately, if parties are concerned about the approach an institution will take, they usually have the right to make the selection themselves or will at least have an opportunity to do so by agreement.
The second area where issues of transparency arise concerns challenges to arbitrators. The practice of different institutions varies considerably in this regard. Many, including ICC, do not provide reasons for its rulings on challenges to arbitrators.12 On one level, this approach is entirely understandable, in that it is a safer course for the institution to insulate itself from claims that its decisions are inconsistent or wrongly reasoned or motivated. Moreover, it may not be practical to reduce the decision to a concise, consistent record of the applicable reasoning where it is made by a body with a substantial membership contributing to the discussion. That being said, it is often far from satisfying for a party that has unsuccessfully maintained or resisted a challenge to be told the result but not the way in which it was reached.
However, the LCIA does now make available information regarding how it deals with challenges to arbitrators. In fact, it recently published the sanitized details of challenges it has dealt with in Arbitration International. This is a project that was many years in the making, and time will tell the extent to which it proves useful in the context of other cases. However, it does seem to be a move in the right direction in terms of giving guidance to arbitrators and parties about the kinds of issues that may be considered to give rise to a successful challenge.
Challenges to arbitrators are necessarily fact-specific, but it is nevertheless possible and may be extremely useful to understand the parameters of acceptability by reference to other decisions of the same or different institutions. Of relevance here is the widespread acceptance of the IBA's Guidelines on Conflicts of Interest,13 which, although not directly applicable to the way in which institutions determine challenges, have brought some clarity to the issue. These guidelines do not set a rigid standard, but the extent to which they are consulted by arbitrators, counsel and parties, as well as institutions, means that they influence decisions of the various stakeholders in this area.14
Finally, the question arises to what extent the institution's role regarding the scrutiny of and proposal of amendments to awards should be transparent. Once again, such transparency might be thought to unnecessarily expose the inner workings of the machine. The award in its final form will be seen by the parties. At that stage, the arbitrator will have accepted or rejected the suggestions of the institution. Why should the parties have a right to see those suggestions that the arbitrator rejected? And what is to be gained from their seeing those that he accepted? Once adopted, they form part of the award, and it does not matter whether they were suggested by the institution any more than it matters that the award is affected by many other influences on how the arbitrator approaches his task.
There may be something to be said for transparency with regard to this issue being a safety net to ensure that institutions confine their comments to form rather than inappropriately seeking to influence the substantive decision. Arguably, however, that comes back to the arbitrator in question. Arbitrators know that it is for them to make the substantive decision and that they are entitled to reject any attempt to influence that decision by the institution. Arbitrators who fail to live up to expectations in this regard may well have broader issues regarding their suitability for the role!
It must be right to question from time to time whether there is a need for greater transparency in arbitration, particularly as regards the role of institutions. The sort of press comments referred to at the beginning of this article may be rare, but they serve as a reminder that what seems clear and obvious to those involved in the system may be less so to others.
There is perhaps still a debate to be had about whether and, if so, how commercial awards should be published: whether the current practice of publishing sanitized awards is sufficient; whether public interest issues should influence the extent to which awards are made publicly available; and even the extent to which the parties should be assumed to want the award to be confidential.
As for the level of transparency within arbitral institutions regarding their role in the arbitration, there is undoubtedly more that could be done, especially regarding disclosure of the reasoning behind arbitrator challenges. Care is nevertheless needed, as any attempt to increase transparency may well have unforeseen and unwelcome consequences. Losing parties often look for ways to challenge an award. Shining a brighter light on the workings of institutions may provide them with further grounds for doing so, and it is hard to see that as progress.
1 Transcript available at: <http://www.pbs.org/now/transcript/transcript_tdfull.html>.
2 Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005; The Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Award, 26 June 2003.
3 Available at: <http://www.businessweek.com/magazine/content/ 02_13/b3776102.htm>.
4 The International Centre for the Settlement of Investment Disputes (ICSID) was established by the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, also known as the Washington Convention. As the name suggests, its primary purpose is to facilitate the settlement of investment disputes between states and foreign investors.
5 See Rules 32(2) and 37(2) of ICSID's Arbitration Rules amended with effect from 10 April 2006.
6 See, e.g., Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23.
7 See decisions available online at: <http://icsid.worldbank.org/ICSID>.
8 See, e.g., the draft rules on transparency in treaty-based investor-state arbitration currently being considered by UNCITRAL's Working Group II, available at: <http://www.uncitral.org/ uncitral/commission/working_groups/2Arbitration.html>.
9 Some institutional rules contain express confidentiality provisions, such as Article 30 of the LCIA Rules and Article 34.5 of the UNCITRAL Arbitration Rules. Under Article 22(3) of the recently amended ICC Rules, the tribunal may, if requested, make orders concerning the confidentiality of the proceedings. Even absent a confidentiality provision in the applicable arbitration rules, there may be obligations of confidentiality under one or more of the laws applicable to the arbitration.
10 Esso Australia Resources Ltd v. Plowman (Minister for Energy and Minerals) (1995), 128 A.L.R. 391.
11 Article 11.4 of the ICC Rules.
12 Ibid.
13 Available at: <http://www.ibanet.org>.
14 See Matthias Scherer, 'The IBA Guidelines on Conflicts of Interest in International Arbitration: The First Five Years 2004-2009', in Dispute Resolution International 4(1) (2010) pp. 5-53.