12 April 2018

Open Up! How far should transparency in international commercial arbitration go?

By Emily Cossgrove and Acacia Hosking

The recent release of the 2017-2018 Annual Asia-Pacific Report on Investor-State Dispute Settlement and Transparency serves as a reminder of how transparency has become an accepted feature of investor-state arbitrations. Perhaps prompted by steps like the October 2017 enactment of the Mauritius Convention or transparency measures in the new CIETAC Investment Arbitration Rules, commercial arbitration users are also increasingly demanding more openness, predictability and certainty regarding the arbitral process and its players.  In the competitive market of commercial arbitration, major arbitral institutions have recognised this call and are actively driving transparency measures.  It remains to be seen how far these trends will evolve, and how far institutions will go to offer the desired benefits of transparency without jeopardising the continued, competing demands for privacy and confidentiality.  

Moves towards greater transparency

The ICC International Court of Arbitration (ICC Court) has recently led the charge by implementing a number of holistic transparency measures.

In 2015, an ICC task force examined over 300 awards from various institutions to provide users with an insight into differing practices and trends in cost allocation across institutions.

Since 1 January 2016, the ICC has been publishing on its website arbitrators’ names for all ICC cases. The tribunal chairperson, arbitrator nationality and whether the appointment was made by the ICC Court or the parties is also published.[1] In 2016, a revision to an ICC guidance note implemented new steps to increase transparency in the ICC Court’s scrutiny process and reduce administrative fees if the ICC Court itself is the cause of delayed scrutiny.[2]Other amendments have provided guidance on disclosure of arbitrator conflicts by illustrating specific circumstances which may question impartiality and independence of arbitrators.[3]For disputes pursuant to the 2017 ICC Rules, reasons for ICC Court decisions concerning the appointment, confirmation, replacement or challenge to arbitrators are no longer confidential and can be communicated to the parties upon request.[4]

The LCIA was the first major institution to undertake a comprehensive analysis of its cases and release data on the cost and duration of arbitrations in November 2015,[5]followed by a second report in October 2017.  The second report covers 224 cases reaching award between 1 January 2013 and 31 December 2016.[6]  In October 2017, the LCIA also implemented changes to its ‘Notes to Arbitrators’ to clarify the tribunal secretary role, and strengthen the existing elements of the LCIA’s approach to tribunal secretaries.  For example, tribunal secretaries (like arbitrators) are now required to complete a statement of independence and consent to appointment to ensure there are no relevant conflicts.[7]Recently, the LCIA released a second online database of 32 arbitrator challenge decisions between 2010 and 2017.[8]This database contains a brief summary of the background to each challenge and an anonymised excerpt of the LCIA Court’s decision. 

Promising efforts towards greater transparency have also been taken by other institutions.  Whilst the Swedish Arbitration Act 1999 does not include any basic duty of confidentiality, in practice, the parties and arbitral tribunal usually observe a level of confidentiality in the process.  As such, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has recently published a practice note on challenges to arbitrators between 2013 and 2015.  This note reviews the SCC Board’s decisions, discusses the SCC’s standards for arbitrator impartiality and explains the procedure for challenges.[9]A recent SCC report which outlined the costs of arbitration and the apportionment of costs under the SCC Rules has also been published as a resource for users.[10]Likewise, the Vienna International Arbitration Centre published a selection of 60 awards in 2015 in a measure to foster greater familiarity, predictability and confidence in relation to the arbitral process.[11]   

Additionally, PwC research has increased user visibility of the way arbitral tribunals view damages.  In analysing 116 awards since 2015, PwC has provided very welcome empirical and anecdotal evidence that arbitral tribunals are taking a more consistent approach to the treatment of damages and are growing in commerciality.[12]Such publications and data are continuing to satisfy the growing desire amongst disputing parties for transparency as to the arbitral process and its players (arbitrators, secretaries etc.), while of course demanding complete confidentiality of the details of their own disputes.  The question remains, however, to what degree does this increased openness increase trust and confidence in the arbitral process?  On the other hand, to what extent does it undermine confidentiality and privacy?  Is there any way to retreat once the curtains have been drawn?  Until more disputes have been played out under the new rules, the answer must be “wait and see”.

Transparency & third party funding

A key area in which transparency is considered by tribunals, parties and commentators is third party funding.  Should the abiding principle be “say to play”?

Most institutional rules do not define or address third party funding, so there is a continued debate regarding the extent of disclosure obligations and the need for further regulation.  Factors such as conflicts of interest, security for costs applications, cost allocations in awards and implications for confidentiality obligations tend to support the move toward transparency and disclosure of funding arrangements.

While it appears generally accepted that disclosing the funder’s identity is necessary (to determine any conflicts of interest with arbitrators or counsel) there is more debate regarding disclosure of funding terms.  In South American Silver v Bolivia, Bolivia requested the tribunal order South American Silver to disclose the funder’s identity and the terms of the funding agreement.[13]The tribunal ordered disclosure of the funder’s name, but found no basis to order disclosure of the funding terms.[14]In a similar vein, Article 27 of CIETAC’s new investment arbitration rules expressly permits third party funding and requires a funded party to notify the opposing party, tribunal and centre administering the arbitration once a funding agreement is entered into.  The duty extends to disclosure of the fact, nature of the funding arrangement and identity and address of the funder.

In Singapore, recent reforms to the Legal Profession (Professional Conduct) Rules 2015 require practitioners to disclose to the court or tribunal and every other party the existence of any funding contract and the identity and address of any funder.[15]The 2017 first edition of the SIAC Investment Arbitration Rules also expressly deal with third party funding.  The tribunal may order parties to disclose the existence of funding arrangements, the identity of the funder and where appropriate, the funder’s interest in the outcome and whether the funder has committed to undertake adverse costs liability.[16]

In June 2017, the Hong Kong Special Administrative Region passed legislation to remove common law barriers to third party funding of arbitration proceedings seated in the jurisdiction, including related court proceedings, proceedings before an emergency arbitrator and mediation proceedings.  Key aspects of the reforms regarding transparency include:

  • the exemption of confidentiality obligations[17]where information is disclosed for the purpose of "having or seeking" third party funding; and
  • disclosure obligations on funded parties to provide written notice of a funding agreement and funder’s identity to the arbitral body and other parties.

Essar Oilfields Services Limited v Norscot Rig Management Pvt Limited (Essar),[18] illustrates the importance of transparency of funding arrangements, given the potential cost implications.  In Essar, an award which provided for recovery of nearly £2 million in funding costs under the ICC Rules was upheld.  The arbitrator awarded costs of US$4 million including costs of obtaining third party funding, pursuant to section 59(1)(c) of the Arbitration Act 1996 (UK) and Article 31(1) of the ICC Rules (at the time).  Section 59(1)(c) defines references to “the costs of the arbitration” as including “other costs of the parties” and Article 31(1) provided that "The costs of the arbitration shall include... the reasonable legal and other costs incurred by the parties for the arbitration".  The Court found the arbitrator clearly had the power to award costs and agreed with the arbitrator's finding that "other costs" can include costs of obtaining third party funding, reasoning the costs relate to and are for the purpose of the arbitration.

It remains to be seen whether other arbitral institutions will follow suit, particularly in the context of commercial arbitration, and through more rigorous disclosure obligations increase transparency of third party funding in arbitrations, and increase transparency generally. 

The direction of travel for Asian and European arbitration is clear though: welcome to a brave new open world (just not too open – yet!).

[1] ICC news update entitled ICC Court announces new policies to foster transparency and ensure greater efficiency, 5 January 2016 (https://iccwbo.org/media-wall/news-speeches/icc-court-announces-new-policies-to-fostertransparency-and-ensure-greater-efficiency/) and ICC Arbitral Tribunals chart (https://iccwbo.org/dispute-resolution-services/arbitration/icc-arbitraltribunals/).

[2] ICC news update dated 13 July 2016 entitled ICC augments transparency in scrutiny process, 13 July 2016 (https://iccwbo.org/media-wall/newsspeeches/icc-augments-transparency-in-scrutiny-process/) and ICC Note to Parties and Arbitral Tribunals on the conduct of the Arbitration under the ICC Rules of Arbitration, 30 October 2017 (https://iccwbo.org/publication/noteparties-arbitral-tribunals-conduct-arbitration/).

[3] ICC news update dated 13 July 2016 entitled ICC augments transparency in scrutiny process, 13 July 2016 (https://iccwbo.org/media-wall/news-speeches/icc-augments-transparency-in-scrutiny-process/) and ICC Note to Parties and Arbitral Tribunals on the conduct of the Arbitration under the ICC Rules of Arbitration, 30 October 2017 (https://iccwbo.org/publication/note-parties-arbitral-tribunals-conduct-arbitration/).

[4] ICC Rules of Arbitration, effective 1 March 2017, Article 11(4).

[5] LCIA, Tools to Facilitate Smart and Informed Choices, 3 November 2015 (http://www.lcia.org//News/lcia-releases-costs-and-duration-data.aspx).

[6] LCIA, Costs and Duration: 2013 – 2016, 3 October 2017 (http://www.lcia.org/News/lcia-releases-updated-costs-and-duration-analysis.aspx).

[7] LCIA, Notes for Arbitrators (http://www.lcia.org//adr-services/lcia-notes-for-arbitrators.aspx)

[8] LCIA Challenge Decision Database, released on 12 February 2018 (http://www.lcia.org//challenge-decision-database.aspx).

[9] SCC, Decisions on Challenges to Arbitrators 2013 – 2015, 23 January 2017 (http://www.sccinstitute.com/media/176447/scc-decisions-on-challenges-to-arbitrators-2013-2015.pdf).

[10] SCC, Costs of Arbitration Report, 24 February 2016 (http://www.sccinstitute.com/media/93440/costs-of-arbitration_scc-report_2016.pdf).

[11] Vienna International Arbitration Centre, selected arbitral awards (http://www.viac.eu/en/component/content/article/79-viac/257-selected-arbitral-awards-viac-read-more-e)

[12] PWC International Arbitration Damages Research 2017 Update, December 2017 (https://www.pwc.co.uk/forensic-services/assets/pwc-internationalarbitration-

[13] South American Silver Limited v Plurinational State of Bolivia, (PCA Case No. 2013-15), Procedural Order No. 10, (11 January 2016) at [13].

[14] Ibid at [79], [80], and [84]

[15] Legal Profession (Professional Conduct) Rules 2015, r 49A (https://sso.agc.gov.sg/SL/LPA1966-S706-2015#pr49A-).

[16] Rule 24(l).

[17] Pursuant to the Arbitration Ordinance (Cap 609).

[18] [2016] EWHC 2361 (Comm).

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