United Nations Conventions on Transparency in Treaty-based Investor-State Arbitration
This Chapter examines the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the Convention). On 18 July 2017, Australia signed the Convention, which entered into force on 18 October 2017 (after three signatories deposited instruments of ratification). The Convention was tabled in the Parliament on 31 July 2019.
The Attorney-General’s Department (AGD) advised that there are five states—Cameroon, Canada, Gambia, Mauritius and Switzerland—for whom the Convention has entered into force, while 23 states (including the United Kingdom and the United States of America) have signed the Convention.
The Convention imposes obligations on Australia that apply to both Australian overseas investors and foreign investors in Australia. The Convention’s obligations are detailed in full in paragraphs 23‑32 of the NIA.
For a general discussion of the Investor-State dispute settlement (ISDS) system see Chapter 2.
The Committee was interested in the motivations and driving force behind the drafting of the Convention. The Department of Foreign Affairs and Trade (DFAT) highlighted that internationally there is a recognition of the concerns expressed around Investor-State dispute settlements and ‘that there needs to be greater transparency in relation to ISDS proceedings’.
As part of the global activities in this space, the Convention was developed to enhance transparency and public accessibility to ISDS arbitrations by applying the existing UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (Rules on Transparency) to a wider pool of investment treaties. Essentially, the Convention ‘retrofits’ older-style investment treaties with modern transparency provisions available for ISDS arbitrations.
The Rules on Transparency currently apply to ISDS arbitrations initiated under investment treaties concluded on or after 1 April 2014. The Convention allows the Rules on Transparency to apply to ISDS arbitrations initiated under investment treaties concluded prior to 1 April 2014.
Overview and national interest summary
The Convention provides a ‘consistent framework for transparency arrangements in investor-state dispute settlement, or ISDS, arbitration proceedings’. Under the Convention, the Rules on Transparency apply to ISDS arbitration where both the investor’s home State and the host State are parties to the Convention. Where the investor’s home State is not party to the Convention, the Rules on Transparency apply where the investor agrees to the application of the Rules.
Key features of the Rules on Transparency provide for:
publication of the following information at the commencement of arbitral proceedings (Article 2):
the name of the disputing parties;
the economic sector involved; and
the treaty under which the claim is being made;
documents, submissions and awards to be publicly available, as a matter of course (Article 3);
following consultations with the disputing parties, the tribunal may allow third persons and non-disputing treaty parties to make submissions on Investor-State arbitrations (Articles 4 and 5); and
arbitration tribunal hearings to be made public (Article 6).
The Convention also contains a provision in Article 2(5) that does not allow for a party to invoke a most favoured nation provision so that ‘parties cannot seek to circumvent the Convention’.
A number of submissions highlighted support for the key features of the Rules on Transparency and the increased transparency that would be provided to ISDS arbitrations, once the Convention is ratified.
The Law Council of Australia commented that ‘increased transparency aids the legitimacy and integrity of the arbitral process, [and] improves confidence in the current system’. Due to the nature of ISDS arbitration, there is a public interest in the proceedings, such that the:
… involvement of a State as a party is a matter of public importance, it concerns the potential liability and financial impact for the State, involves potential misconduct by a State, and may address broader public policy issues.
More specifically, the Law Council noted that the publication of documents and public access to hearings ‘provides greater public access to the proceedings’, including greater insight into arbitral processes and in turn, understanding of dispute outcomes.
One other submission noted that consensus for including more transparency in ISDS dispute resolutions is growing, particularly as a mechanism by host States to ‘encourage foreign investment flows’.
Confidentiality and protection of information
The increased transparency provided for in the Rules on Transparency is ‘subject to exceptions for confidential or protected information’, including confidential business information and information that would be ‘contrary to a state’s essential security interests’, if disclosed. Specifically, the Rules on Transparency define confidential or protected information as:
confidential business information;
information that is protected against being made available to the public under the investment treaty;
information that is protected against being made available to the public, in the case of the information of the respondent State, under the law of the respondent State, and in the case of other information, under any law or rules determined by the arbitral tribunal to be applicable to the disclosure of such information; or
information which if disclosed, would impede law enforcement.
According to the Law Council, without these appropriate safeguards both the legitimacy of the Convention and the confidence of States to apply the Convention would be undermined.
The Committee noted that concerns had been flagged around the potential misuse of the provisions to protect information, which could result in undermining the transparency objectives of the Rules on Transparency. The Australian Fair Trade and Investment Network’s (AFTINET) submission argued that the:
… inclusion of exemptions for confidential business information and protected information without defining these terms opens up scope for corporations to claim that documents submitted to the tribunal should not be made public. Arbitration tribunals may then be required to interpret these provisions. This could limit public access to arbitration documents and reduce oversight of arbitration proceedings.
The Committee sought further clarification on the transparency of the decision-making processes to determine what information is confidential—specifically, what measures exist to ensure the transparency of deliberations by an arbitral tribunal to determine and declare documentation or information as confidential.
AGD provided a multi-part response, stepping through a number of articles from the Rules on Transparency. The department outlined that Article 7‑Exceptions to transparency, provides the ‘procedural guidance’ for an arbitral tribunal’s determination on whether information is considered confidential or protected, with Article 7(2) defining such information.
In terms of the deliberation process, AGD highlighted that ultimately the determination is a matter for the tribunal, noting consultation with both disputing parties must occur before such a decision.
AGD acknowledged that the Rules on Transparency do not require an arbitral tribunal to publish decisions related to information determined to be confidential or protected. However, AGD noted that Article 3‑Publication of documents:
… reflects the balance that must be struck between the public interest in the Rules’ transparency objectives and the need to ensure the manageability and efficiency of the arbitral procedure.
Reasons for Australia to take the proposed treaty action
Australia has traditionally promoted transparency in international litigation and sees the Convention as an ‘important development in terms of ISDS globally’. The Government considers the inclusion of ISDS provisions in free trade arrangements on a case-by-case basis in light of the national interest.
AGD advised the Committee that ratification presented several opportunities for Australia, including:
demonstrating its support for greater transparency in ISDS arbitration proceedings;
taking a lead in the Asia-Pacific region as a ‘modern, competitive, arbitral jurisdiction’; and
aligning ISDS proceedings for investment treaties concluded prior to 1 April 2014 with the transparency arrangements in Australia’s recent free trade agreements.
Regarding the latter, the NIA explains that ratification of the Convention is an efficient way to update Australia’s network of 18 older-style bilateral investment treaties (and four FTAs with Chile, Singapore, Thailand and the Association of Southeast Asian Nations). The Convention will bring these older-style bilateral investment treaties ‘into line with the modern transparency provisions in recent FTAs’—meaning the Convention promotes both ‘transparency and consistency of application in ISDS arbitration proceedings’.
Ratification is also expected to ensure greater certainty for investors and governments with respect to their rights and obligations. Australia will also be able to participate in relevant ISDS cases as a non-disputing treaty party—including the ability to make a submission as an affected or interested third party. Australia will be provided the opportunity to express its views on ‘the interpretation of particular treaty provisions’, for example:
There might be a dispute between another investor state and another respondent where at stake is an element of principle about which Australia would usefully want to say, “This is our understanding,” and assist the tribunal in that context… [and] build up a body of decisions.
All four submissions from non-government bodies outlined support for ratification, noting the Convention will improve and strengthen transparency around ISDS arbitration procedures, as well as address ongoing public concern in this area.
Practical effect of the Convention
The Convention automatically applies to ISDS arbitration between two states that are signatories. In this case, the Rules on Transparency ‘will prevail over any inconsistency’ with what’s included in the investment treaty under dispute between both states.
Where only one state that is party to an investment treaty is a signatory to the Convention, there is a ‘standing offer for the investor [from the other state]’ to agree to the Rules on Transparency to be applied in the case of an ISDS arbitration. However, if the investor does not agree to use the Rules on Transparency, where there is a conflict or difference with the provisions of the treaty and the Rules on Transparency, the treaty’s provisions will take precedence in arbitral proceedings.
The Law Council observed that given these parameters, the Convention ‘will be most effective if widely adopted by states’. DFAT also highlighted that from Australia’s perspective, the greater the number of countries that ratify the Convention ‘would be a positive step and a positive signal in relation to transparency’ in ISDS arbitrations.
However, as at September 2019, Australia did not have bilateral agreements with any of the five nations that have ratified the Convention (noting there are 23 signatories). In this circumstance, the practical application of the Rules on Transparency would only apply to ISDS arbitrations involving Australia, where the foreign investor has actively agreed to opt-in and use the rules.
During the inquiry, this situation was raised as a limitation of the application on the Rules on Transparency. One submitter mentioned the possibility for states that are not party to the Convention to ‘apply the rules on an ad hoc basis’. States can choose not to apply the Rules on Transparency where there is a:
… sensitive or reputationally damaging matter that they do not want [publicised]… [which] undermines the intention of the Convention to increase transparency overall, not simply when it is convenient to a party.
Another submission argued that this allows for the provisions of a treaty to prevail even where those ‘rules are less transparent’ than those of the Rules on Transparency.
For example, according to Dr Nottage, the investment chapter of the new bilateral free trade agreement between Australia and Indonesia (IA-CEPA) has ‘narrower transparency provisions’ than the Convention. As Indonesia is yet to ratify the Convention, the Rules on Transparency will only apply where the investor chooses for this to occur. However, if Indonesia ratifies the Convention, the extra transparency associated with the Rules of Transparency will extend to any ISDS claim made under the IA-CEPA (even if the investor chooses current International Centre for Settlement of Investment Disputes Arbitration Rules to bring an ISDS claim).
AFTINET specifically argued that while they supported the ratification of the Convention, the limitation described above ‘significantly reduces the scope of the Convention’, particularly to address transparency issues surrounding ISDS.
DFAT expressed that they do not ‘necessarily agree’ that the Convention has limited practical applications, because of a number of factors, including that:
investors from a range of countries outside of those five that have ratified, could agree to greater transparency for a variety of reasons; and
based on multilateral discussions over the last couple of years, there ‘really is a mood to make some reform in relation to ISDS’ and that transparency is an issue that continues to be at the centre of reform activities.
More broadly, DFAT indicated that Australia’s ratification of the Convention would encourage other countries to take similar action.
One submitter also reiterated the NIA’s point (previously canvassed in paragraph 4.22) on the part ratification will play in modernising Australia’s older-style bilateral investment treaties, such that:
Australia’s ratification of … [the Convention] will generate a similar expansion of transparency “retrofitted” to Australia’s many other earlier investment treaties, as long as the counterparty states also ratify this framework convention. This is especially important for Australia’s early standalone BITs [bilateral investment treaties], as they usually don’t add transparency provisions to the treaty text … This lack of transparency provisions in BITs is different from Australia’s more recent (US-style) FTA investment chapters. But such FTA transparency provisions vary too, so … Convention ratification will be useful even for those FTAs by making transparency obligations more uniform and pervasive.
Variation in the transparency provisions of more recent FTAs was also raised in AFTINET’s submission, which claimed that there ‘has been inconsistent application of the Rules on Transparency in Australian trade and investment agreements that have been concluded since the adoption of the Rules’.
In its submission to the inquiry, AFTINET recommended that the Australian Government should ratify the Convention so that investment agreements which include ISDS provisions will be, ‘at a minimum’, subject to the Rules on Transparency and that the Australian Government should:
… address inconsistencies in the application of the Rules on Transparency in existing agreements to ensure they conform to the UNCITRAL rules.
No legislative amendments are required to implement the Convention.
AGD advised that if the Committee recommends binding treaty action, the ‘next step would be to seek federal executive council approval to ratify’ the Convention.
The NIA states that there may be the potential for a small increase in costs where Australia is party to an ISDS arbitration. The increase would be attributed to the requirements to publish documents and permit third persons and non-disputing treaty parties to be involved in hearings.
The Office of Best Practice Regulation has been consulted and advised that a Regulation Impact Statement is not required.
The Committee notes that the Convention was developed to enhance transparency and public accessibility to ISDS arbitrations by applying the existing Rules on Transparency to a wider pool of investment treaties—those initiated under investment treaties concluded prior to 1 April 2014.
Specifically, the Committee acknowledges the benefits of the Convention in promoting transparency and consistency in ISDS arbitration proceedings, addressing ongoing public concern in this area. Once ratified, the Convention will provide an efficient mechanism to modernise and update the transparency provisions in Australia’s network of older-style bilateral investment treaties and FTAs.
The Committee supports the Convention and recommends that binding treaty action be taken.
The Committee supports the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration and recommends that binding treaty action be taken.