Investor state arbitration reforms increasing transparency

Given the difference in laws applicable to the different nationalities as well as the concerns for partisanship, the United Nations under the United Nations Commission on International Trade Law (UNCITRAL) formulated arbitration rules in anticipation of such disputes1. Investor-state arbitration also referred to as Investor State Dispute Settlement (ISDS) therefore refers to the arbitration of conflicts that arise between foreign investors and host nations2. The rules developed by UNCITRAL in 1976 borrowed heavily from commercial arbitration laws and laid emphasis on privacy and confidentiality3. This therefore implied that transparency had no room in the investor-state arbitration rules denying the public a chance for access to the information or participation. However, following a surge in investor-state arbitrations, more interest in the process of arbitration has developed.

The source of the international investment laws was therefore the reason for the confidentiality and lack of transparency in the investor-state arbitration rules. As a consequence of the source of the rules governing investor-state arbitrations, the subsequent treaty-based investor-state arbitrations took place under the precincts of confidentiality and privacy9. This therefore barred any public involvement in the process and concealed the details from the public despite the fact that international investment affect the public in various ways. To answer the question of confidentiality manifested itself in the state-investor arbitration process, confidentiality and privacy was a building block in the architecture of the international investor arbitration laws and therefore a fundamental requirement at the time. It was not until 2008 when calls for transparency in the process intensified leading up to the adoption of transparency rules in 201410.

As envisioned by UNCITRAL in 1976, the investment and trade laws were to serve the following purposes; ensure fair and equitable treatment of foreign investors by the host nation, ensure foreign investors are protected from expropriation, protection of freedom to transfer funds, fair national treatment amongst others16. In effect therefore, protection of foreign investors’ human and business rights formed the core of the justification for transparency in the investor-state arbitration process to ensure that the outcome of such arbitrations protect the very rights that the investors have. This hailed from complaints of states bulldozing the arbitration process in their exercise of their sovereignty. The second reason is the improvement of good governance by states. The protection of the business and human rights of foreign investors is a fundamental aspect of good governance seeing that international investment is a critical element to a country’s economic growth.

It is quite obvious that whenever an investor enters an arbitration process with a country, the country has an upper hand due to stronger networks and sovereign powers. This therefore means that under the precincts of confidentiality and privacy, investors are likely to be disadvantaged by the strong hand of governments thereby settling for less than what they deserve. It is interesting to note that states win majority of the arbitrations despite the fact that investors present majority of the complaints21. To enhance equality and fairness, the public should be allowed to access the details of arbitration and be allowed to contribute through submissions in open hearings22. Conducted in public, there are high chances that both disputants will play fair and that there will be unbiased ruling of the dispute.

The EU proposes that all exhibits in the investor-state arbitration be made public28. Thirdly, the Transparency rule required non-disputants be allowed to make written submissions. This was under the condition that the submissions are relevant to the arbitration at hand. Further, and perhaps most significant, the transparency rule require that the hearings are made public. This is so that the public are able to follow the hearings as they happen thereby eliminating the confidentiality and privacy aspect of the earlier arbitrations29. Following this clear plot to undermine transparency, it is indeed necessary that through legislations, all the loopholes that disputants might use to undermine transparency are sealed. Conclusion Transparency is a fundamental element in upholding justice and protection of business and human rights of the foreign investors.