New Rules on Transparency in UNCITRAL Investor-State Arbitration Agreed in New York
A United Nations working group agreed in February to new rules that will make at least some investor-state arbitrations conducted under the rules of UN Commission on International Trade Law (UNCITRAL) more transparent.
The UNCITRAL rules have long been criticised for allowing investor-state arbitrations to advance under a veil of secrecy. The new rules on transparency, forged over two years of negotiations, will give the public much greater access to arbitration proceedings and related documents; however, at least as presently designed, they will not apply to all investor-state arbitrations operating under the UNCITRAL rules.
In the final stages of negotiations, the working group clashed over whether and when the new transparency rules would apply. Under one approach, the transparency rules would only apply to investment treaties concluded after the new rules come into force unless states or disputing parties agree otherwise. In contrast, under an “opt-out” approach the new rules could apply to existing treaties if those treaties permitted.
At the February 4-8th meeting in New York, the working group favoured the former approach. As such, the rules will only apply: a) where the disputing parties agree to their application in a particular arbitration; or, b) where the state parties to a treaty provide specific consent after the rules have been adopted.
Arbitration proceedings that apply the new rules will be considerably more open than those under the old rules. Under the 1976 and 2010 (non-transparent) rules, either of the disputing parties can demand that the proceedings take place in-camera. Similarly, on its own motion or the request of a disputing party, a tribunal can block the release of written documents related to the proceedings. Particularly significant, neither disputing party can release the award without the other disputing party’s agreement, effectively giving each party veto powers regarding the publication of awards.
In contrast, the new rules require that oral hearings are open to the public—with or without the consent of the disputing parties. Written documents related to the proceedings, such as the notice of dispute, pleadings, and awards, will also be published.
The working group favoured a single repository for these documents, preferably managed by the UNCITRAL secretariat. The World Bank’s International Centre for Settlement of Investment Disputes (ICSID)—which already manages a public registry of its own cases—and the Permanent Court of Arbitration at the Hague have offered to manage the repository in case the UNCITRAL secretariat is unable to perform the service.
The February meeting also focused on whether a tribunal must accept submissions by non-disputing state parties to the treaty on issues of treaty interpretation, or whether it could exercise its discretion. Ultimately the working group agreed that arbitral tribunals should accept those submissions if offered as long as they don’t unduly burden the proceedings or unfairly prejudice a disputing party.
Another important area of negotiation was exceptions to transparency—i.e., what can or cannot be kept from disclosure. Some members of the group thought that exceptions should be “self-judging,” allowing a disputing party to with-hold information “it considers would impede law enforcement, or would be contrary to the public interest, or its essential security interest.” But many other members felt that a self-judging rule gave disputing parties too much leeway to impose secrecy.
In the end, the working group agreed that the following types of information would be considered “confidential or protected” and could be shielded from disclosure: confidential business information; information that is protected against being made public under the treaty; information that is protected against being made public under the law of the respondent (in cases where the information relates to the respondent) or any laws or rules that the tribunal considers to be applicable; and information which would impede law enforcement.
The working group also agreed to insert a provision (found in a number of investment treaties) clarifying that nothing in the rules would require “a respondent to make available to the public information the disclosure of which it considers to be contrary to its essential security interests.”
The UNCITRAL secretariat must now prepare a final draft of the rules to be considered for approval by the UNCITRAL Commission, which meets in Vienna in July.
The secretariat has also been asked to draft various pieces of text that could be used by governments to give their consent to the transparency rules in their existing investment treaties. That consent could take the form of a convention, which could avoid the need to enter into bilateral negotiations to amend each of their investment treaties, and model declarations.
President of Ecuador requests termination of US-Ecuador BIT
In a letter sent March 6th the President of Ecuador asked the President of the National Assembly (the country’s legislative branch) to denunciate the United States-Ecuador bilateral investment treaty.
Ecuador has defended itself in numerous investment arbitrations, and has already terminated 9 BITS and withdrawn from ICSID. In one of the largest blows to the country, last September Ecuador was ordered to pay US$1.77 billion in damages by the majority of an ICSID tribunal—the largest award to-date in an ICSID arbitration—after the tribunal found that Ecuador had expropriated Occidental Petroleum Corporation’s investment in the country.
President Rafael Correa also announced in March that the government would establish a commission to audit BITs, according to a report by the Wall Street Journal. Mr. Correa said the audit would be performed by representatives of social movements and local and international experts.
Mr. Correa emphasized his preference for a regional approach to dealing with foreign investors. “Individually, these (multinational corporations) can trample our countries, can impose their abuses. Regionally we impose our conditions to multinationals. There will be a response from UNASUR, from ALBA,” Mr. Correa is quoted as saying by the MSJ.
Ecuador proposed in 2009 that the Union of South American Nations (UNASUR) set up an arbitration center as a regional alternative to ICSID. Ecuador has also taken the initiative to propose rules for the new arbitration center.
India suspends negotiations of bilateral investment treaties
Inside US Trade reported in February that India had suspended all negotiations of bilateral investment treaties while it conducts a review of its own model BIT.
Quoting an unnamed government official, the review of its model BIT began in September, and came on the heels of a number of recent investor claims against India.
Private sector sources speculated that the review would focus on investor-state dispute settlement provisions and the most-favoured nation provision.
The MFN provision was central to the success of an Australian claimant, White Industries, in a dispute that resulted in a damages award of A$4.08 million against India in November 2011. White Industries relied on the MFN clause to benefit from the obligation to “provide effective means of asserting claims and enforcing rights” contained in the India-Kuwait BIT.
India has also recently been the target of claims by Russian and Norwegian investors over a Supreme Court decision to revoke telecommunications licenses.
New Zealand is keen to introduce cigarette branding regulations, but awaits outcome of legal cases against Australia
The government of New Zealand has agreed to legislate for plain packaging of tobacco products. However, noting that similar legislation in Australia has resulted in legal challenges, the Cabinet has decided to delay implementation of the plan while it monitors the cases involving its neighbour.
New Zealand agreed “in principle” in April 2012 to introduce a plain packaging legislation, pending public consultations. In February of this year, the government announced that the results of the consultation “confirmed that plain packaging will be an effective means of reducing the appeal of smoking …”
However, the Associate Minister of Health, Tariana Turia, added that “the Government acknowledges that it will need to manage some legal risks, as we have seen in Australia.”
“To manage this, Cabinet has decided that the Government will wait and see what happens with Australia’s legal cases, making it a possibility that if necessary, enactment of New Zealand legislation and/or regulations could be delayed pending those outcomes.”
The tobacco company Philip Morris filed for arbitration against Australia in November 2011, claiming the government’s regulations on cigarette branding breach the Hong Kong-Australia BIT. Oral hearings in that case are set to begin in February 2014.
Australia has also faces complaints at the World Trade Organization by the governments of Honduras, Ukraine and Dominican Republic, which argue that the plain packaging legislation violate trade rules on intellectual property.
Number of ICSID cases spikes in 2012
ICSID had 50 new cases in 2012, the largest number in its history. The 2012 figure compares to 38 cases in 2011 (which at that point was the highest to date) and 26 in 2010.
As of December 31st, 2012, ICSID had accepted a total of 412 cases since its establishment.
In 2012, Eastern Europe and Central Asian countries topped the list with 26% of cases, followed closely by South America with 24% of cases. Venezuela faced the highest number of claims, with 9 new cases introduced in 2012.
Historically, South American countries have faced the largest share of disputes.
Sixty-seven percent of claims last year came under the consent of bilateral investment treaties, 13% under investor-state contracts, 12% under host-state investment law, 4% under NAFTA, and 4% under the Energy Charter Treaty. This is close to the historical average of 63% under bilateral investment treaties, 20% under investor-state contracts, 6 percent under host-state investment law, 4% under NAFTA, and 4% under the Energy Charter Treaty.
Also in line with past years, the bulk of arbitrators appointed to ICSID case in 2012 are from Western Europe (42%) and North America (24%).
The ICSID caseload statistics are available here: https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=CaseLoadStatistics
 “Ecuador Plans to Audit Bilateral Investment Treaties,” by Mercedes Alvaro, Wall Street Journal, March 11, 2013, http://online.wsj.com/article/BT-CO-20130311-708469.html