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A total lack of transparency

Why responsible companies and governments should avoid the revised ICC Rules in arbitrations involving states
|Written By Gus Van Harten
A total lack of transparency

There is something awry when a dispute between a company and a government that engages public policy is resolved by arbitrators subject to the authority of an international business organization. It becomes ridiculous when virtually everything about the process is kept confidential.

So we should lament the recently revised arbitration Rules of the International Chamber of Commerce. We should lament especially the failure to incorporate transparency provisions that have been adopted in other forums for investor-state arbitration.

The ICC Rules are regularly used to decide compensation claims by companies against governments, especially in low-income and developing countries. Based on limited data released by the ICC, there was an annual average of 69 ICC arbitrations involving a state or state entity from 2005 to 2009. It is safe to assume that the public interest was engaged in many such cases in light of the experience in more open forums and the few ICC awards that have become public.

For example, an ICC arbitration in 2005 between Bechtel Corp. and India on the calamitous Dabhol power project followed years of public controversy over the one-sided terms of the Enron-led deal, allegations of corruption, refusals by the World Bank to finance the project, major impacts on the environment and fishing, brutal treatment of local activists, and the eventual election of a government opposed to the project. The case engaged a host of public interest concerns. It was decided by three U.S. commercial lawyers, based in New York, who accepted nearly all of Bechtel’s claims and awarded more than $100 million against India with virtually no mention of various policy concerns that infused the dispute.

Moreover, in this policy context, investor-state arbitration gives exceptional powers to arbitrators. The arbitrators interpret and apply broad standards to regulate governments. They issue internationally enforceable orders and awards for vast amounts of public funds. They are heavily insulated from judicial review at the domestic or the international level. They are probably the closest we have come to an international administrative or constitutional court, but without conventional safeguards of judicial openness and independence.

Also, for institutional reasons, ICC arbitrations involving states are open to an unfortunate perception of bias in favour of business interests. Under the rules, appointing authority is allocated to the ICC International Court of Arbitration, members of which include lawyers and arbitrators nominated by the ICC world council of business on the recommendation of the ICC’s executive board.

After interviewing hundreds of participants in the arbitration industry, legal academics Yves Dezalay and Bryant G. Garth commented that the ICC court “is really an oversight committee that reviews arbitration appointments and decisions [and that] appears to be particularly sensitive to the business clientele.” In 2008, the chair of the ICC court, Pierre Tercier, resigned, reportedly because of objections that the body was not sufficiently independent of the ICC secretariat.

As such, independence is undermined by the ICC’s overlapping role as a promoter of investor-state arbitration, a provider of commercialized arbitration services, and the legal overseer of actual arbitrations. Indeed, the company that brings a claim against a state may itself be a member of the ICC or one of its affiliates.

Related to independence is the provision in the ICC Rules for blanket confidentiality. The existence of a case, the identity of the arbitrators, the text of awards, etc. are all kept from the public. Thus, a legislature or an auditor general (let alone other policy-makers and the media) may be unable even to identify important decisions affecting their government. Blanket confidentiality may be acceptable in commercial arbitration, but it is simply inappropriate in the final adjudication of public law and public policy.

Worst of all, in revising its rules the ICC was presumably aware that other investor-state arbitration forums, including the International Centre for Settlement of Investment Disputes and the United Nations Commission on International Trade Law, have instituted transparency reforms or are considering them. The ICC revision followed several years of deliberation by a committee of about 20 members, advised by ICC members and affiliates.

Thus, the question arises whether the ICC eschewed transparency in order to leverage secrecy into a comparative advantage in the arbitration marketplace. If so, this would seem to be a case of a business lobby working with an arbitration club to maintain a confidential process for judging and shaping public policy. While this might enhance career opportunities for some arbitrators, in the long run I doubt that it serves business or international arbitration, let alone the public.

Of course, investors are sometimes mistreated by governments just as companies may collude with government to do bad things. Investors may be victims or perpetrators of corruption; they may suffer or abet human rights abuses. But the adjudication of disputes between companies and governments over public policy must be open and institutionally independent, otherwise, the process risks facilitating a wide range of social ills.

In commercial arbitration, the ICC rules offer a useful tool for companies to plan their affairs and resolve disputes. But they have a dark side. When drafting treaties or contracts that allow for arbitrations involving states, companies and governments should support open and fair adjudication by avoiding the ICC Rules.

Gus Van Harten is an associate professor at Osgoode Hall Law School and taught previously at the London School of Economics. Open access to his publications: http://ssrn.com/author=638855. Open access to his research data on international investment arbitration: www.iiapp.org.

  • RE: A total lack of transparency

    H Solomon
    Excellent point! I have been researching the new ICC rules and I believe it is exasperating an existing problem in Investor State Arbitration which is lack of transparency and in light of recent political and social upheavals in many "host states" esp. in the Middle East we could see governments being thwarted because of arbitrating behind closed doors in multi-billion dollars deals that are pivotal to those impoverished and their future. I believe there could be a momentum for opposing the system altogether (like what happened in the 1970s and the effort that culminated in UN Res 3281 (XXIX). Charter of Economic Rights and Duties of States). we just need to form a strong sentiment in Academia and beyond..

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