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Protecting Confidentiality in Investor-State Arbitration

- Valerie Li

Should investors and host states be concerned about the embrace of transparency in the arbitral process?  What can a participant do to protect sensitive information from disclosure?

Investor-state arbitration provides for the resolution of disputes between individuals and corporations from a contracting country with a foreign sovereign in international arbitration.  One of the key privileges of the arbitral process is confidentiality.  Confidentiality provisions are typically included in the treaty, contract, or law underlying the parties’ agreement to submit their dispute to investor-state arbitration.

But since the early 2000s, the principle of confidentiality has engendered public suspicion about investor-state arbitrations and underlying treaty negotiations that make this type of arbitral process available.  High profile environmental disputes have led the public to question how governments are handling matters of public interest, including issues concerning human rights, public health and safety, and labor and environmental standards, in the context of private arbitration.  It has also invited inquiry into whether or not such processes undermine a sovereign’s regulatory authority and pose a threat to democratic governance.   More recently, the Transatlantic Trade and Investment Partnership (also known as TTIP) and Trans-Pacific Partnership (TPP) negotiations have sparked public debate in many countries (including Germany, Austria, and the United States) about the perceived secrecy of investor-state arbitrations.[1]  The resulting backlash against the “secretive processes” of investor-state arbitrations has led to the adoption of rules that promote transparency.[2]

Efforts to increase transparency in the investment arbitration process

Both arbitral institutions and state governments have made significant efforts to increase transparency.  The International Centre for Settlement of Investment Disputes reformed its arbitration rules in favor of making information public in 2006.  The inclusion of Article 29 in the U.S. State Department’s 2012 Model Bilateral Investment Treaty is another example of an aspirational move towards transparency.  Article 29 requires that pleadings, briefs, transcripts, orders, and other documents be made available to non-parties and that hearings be open to the public.[3]  In 2014, the UN General Assembly adopted the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration Rules on Transparency in Treaty-based Investor State Arbitration.[4]  UNCITRAL’s Rules on Transparency provides for disclosure of documents that includes any transcripts of hearings, orders, decisions, and awards, and the parties’ written submissions.  It has served as a model for recent treaties, such as the EU-Singapore Free Trade Agreement, the Japan-Oman Bilateral Investment Treaty, and respective bilateral investment treaties between Canada and Côte d’Ivoire, Mali and Senegal.

The movement towards transparency may be troubling for potential participants of investor-state arbitration.  Private parties may be concerned about conferring a competitive advantage on competitors through the disclosure process, while host states may be wary of the political consequences accompanying public disclosure.  What are the steps that a participant can take to protect sensitive information from disclosure?

Exceptions to transparency rules that protect confidentiality

The answer lies in the same rules that call for greater transparency in the arbitral process.  For instance, Article 19 of the U.S. Department of State’s 2012 Model BIT provides that disclosure of confidential information is not required if it would impede law enforcement, be contrary to public interest, or “prejudice the legitimate commercial interests” of public or private companies.  Article 2102 of NAFTA also absolves a party from providing access to information that concerns its “essential security interests.”[5]  UNCITRAL Rules on Transparency also provide a broad list of exceptions to the rule of transparency under Article 7, which includes

  • confidential business information;
  • protected information as defined by the treaty underlying the arbitration;
  • protected information under the law of the responding state;
  • protected information under any law or rules applied by the arbitral tribunal; and
  • information that may impede law enforcement if disclosed.
  • Additionally, a state is not required to publicly disclose information if it would “be contrary to its essential security interests.”[6]

That is not to say these exceptions are absolute.  Just as arbitral tribunals exercise discretion in granting or denying production of a document, they also have discretion when applying the exceptions to transparency requirements.  In Merrill & Ring Forestry L.P. v. The Government of Canada, the NAFTA tribunal rejected the application of the “cabinet confidence” privilege recognized under Canadian law, pointing out that the government did not provide a sufficiently clear explanation about the reasons for claiming the privilege.[7]  In Biwater Gauff v. Tanzania, the tribunal reasoned that the Tanzanian doctrine of “public interest immunity” was inapplicable in an international arbitral tribunal.[8]

Considerations for the investor or host state

Uncertainty in the application of confidentiality rules in the arbitral process should encourage potential investors and host states in high-stakes investor-state arbitration to take steps to minimize the uncertainty of confidentiality rulings.  Some initial considerations:

  1. Analyze information that is relevant to the dispute before initiating the arbitration and consult, for instance, the International Bar Association’s widely used Rules on the Taking of Evidence to determine what documents will likely be requested in the course of the arbitral process.
  2. Check the confidentiality provisions that may apply to the arbitration under the treaty, or contract applicable rules and law.
  3. Brainstorm creative ways of limiting disclosure, e.g., by limiting the scope or relevant time period of the dispute, stipulating to facts and issues, or using other alternative dispute resolution modalities.
  4. Determine the powers of the arbitral tribunal in deciding issues regarding confidentiality and whether there is a right of appeal of decisions regarding confidentiality.
  5. At the outset of the proceedings, the parties should agree on the level of confidentiality protection to be afforded to evidence in the arbitration.
  6. Be able to articulate with sufficient clarity the reasons for claiming confidentiality.

[1] See, e.g., August Reinisch, The European Union and Investor-State Dispute Settlement: From Investor-State Arbitration to a Permanent Investment Court, in Investor-State Arbitration Series Paper No. 2 – March 2016, Centre for International Governance Innovation (2016) at 8.

[2] See generally Emilie M. Hafner-Burton et al., Predictability Versus Flexibility: Secrecy in International Investment Arbitration, ILAR Working Paper #18 (2015), available at http://pages.ucsd.edu/~ehafner/pdfs/ILAR_Working-Paper_18.pdf.

[3] U.S. Department of State, 2012 U.S. Model Bilateral Investment Treaty, available at http://www.state.gov/documents/organization/188371.pdf.

[4] United Nations Convention on Transparency in Treat-based Investor-State Arbitration (New York, 2014) (the “Mauritius Convention on Transparency”), UNCITRAL.org, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2014Transparency_Convention.html?lf=100&lng=en.

[5] North American Free Trade Agreement, adopted Jan. 1, 1994, available at http://www.sice.oas.org/Trade/NAFTA/chap-21.asp#A2101.

[6] Id.

[7] Merrill & Ring Forestry L.P. v. The Government of Canada, ICSID Decision of the Tribunal on Production of Documents, available at http://www.naftaclaims.com/disputes/canada/merrill/procissues/merrill-po-16.pdf.

[8] Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID No. ARB/05/22, (ICSID Arb. Panel 2006), Procedural Order No. 2, available at https://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC1630_En&caseId=C67.