On 9th July 2014, at its 47th session, the United Nations Commission on International Trade Law (UNCITRAL) approved a Draft Convention on Transparency in Treaty-Based Investor-State Arbitration (the Convention). The main aim of the Convention is to extend the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (the Transparency Rules). As previously reported by us, the Transparency Rules were introduced to try and increase transparency in investor-state arbitrations by allowing for greater public access to documents and hearings and for interested parties to make submissions to the tribunal.

If adopted by the UN and embraced by states, the Convention has the potential to bring about a significant change to the resolution of investor-state disputes, impacting states and investors alike.

Need for a Convention

The Transparency Rules apply to claims under treaties concluded after 1 April 2014 unless the relevant treaty includes an express opt-out. However, for treaties concluded before 1 April 2014, the Transparency Rules only apply where the parties to an arbitration agree on their application or if the state parties to the treaty have otherwise opted in to their application.

As noted by the UNCITRAL Working Group, the primary purpose of the Convention is to provide for a simpler method for the application of the Transparency Rules to the approximate 2,800 treaties entered into before 1 April 2014 by allowing states that wish to comply with the Transparency Rules to do so.

Application of the Convention

For treaties concluded before 1 April 2014, the Convention represents an agreement by contracting states to apply the Transparency Rules where an investor claimant is from a state that is also a contracting party to the Convention. Even where the investor claimant is not from a contracting state or from a state that has made a relevant reservation under the Convention, contracting states are still required to apply the Transparency Rules if the claimant agrees to their application. The Convention applies the Transparency Rules to contracting states in the same way as to treaties concluded after 1 April.

The Convention also extends the de facto application of the Transparency Rules to arbitrations commenced under any rules and not only the UNCITRAL Arbitration Rules. Notably, the Transparency Rules would therefore apply to arbitrations under the ICSID Arbitration Rules.

The Convention will now be submitted to the United Nations General Assembly for final consideration and adoption at its 69th session later this year.

Impact of the Convention

Contracting states will inevitably have to adjust to increased public scrutiny. Similarly, investors will need to carefully consider the impact that increased public scrutiny and third party involvement might have on their own reputations and their dealings with states. Both investors and states alike may also be impacted by the increased potential for interested third parties to become involved in treaty claims resulting in increased costs and complexity as well as the potential for third parties to capitalise on proceedings to raise their own profile or awareness of a cause.

Herbert Smith Freehills partner Christian Leathley, who attended the UNCITRAL working group sessions on transparency as representative of the International Bar Association, welcomed the adoption of the Convention. In a comment to the Global Arbitration Review, he noted: “It’s particularly good news for the number of states and observers that were pushing for a pro-transparency norm. But the important question now is who signs it and what reservations, if any, are adopted by the signatory states. That will show how serious states are about incorporating transparency into their treaty practice.

For further information, please contact Christian Leathley, Partner, Daniel Waldek, Senior Associate, or your usual Herbert Smith Freehills contact.

Christian Leathley
Christian Leathley
+44 20 7466 2532
Daniel Waldek
Daniel Waldek
Senior Associate
+65 6868 8068