Increased transparency in international commercial arbitration
August 2016 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION
Transparency in international arbitration is increasingly a hot topic. The past year has seen arbitral institutions taking greater steps to improve the transparency of the arbitral process, particularly as regards decisions made by the institutions themselves.
Notably, the ICC announced several new policies recently, including that it will provide parties with reasons for administrative decisions, including with respect to challenges to arbitrators, and that it will publish the names and nationalities of arbitrators sitting in ICC cases. However, the ICC is not the only institution making moves toward increased transparency. Other institutions, including the LCIA, SCC and HKIAC, also appear keen to foster a culture of increased transparency around the arbitrations they administer.
These are steps that gel with the current zeitgeist among practitioners. The QMUL International Arbitration Survey 2015 suggested that those in the arbitration community would welcome increased transparency in institutional decision making. It was noted that those who participated in the survey “feel that arbitral institutions should contribute to the improvement of international arbitration by publishing data not only on the average length of their cases, but also on the time taken by individual arbitrators to issue awards. Respondents also welcome increased transparency in institutional decision-making on the appointment of, and challenges to, arbitrators”.
ICC’s steps towards greater transparency
In response to these concerns in the arbitration community, the ICC has recently announced a number of steps designed to increase the transparency of institutional decision making. Indeed, the ICC has confirmed that part of its “overarching strategy” is to enhance the transparency and predictability of the arbitration process.
In October 2015, the ICC announced that, in response to growing user demand, the ICC Court would, on the request of the parties (and subject to potentially increased administrative fees, normally not to exceed US $5000), communicate the reasons for a number of administrative decisions issued under the ICC Rules. This policy became effective in new and ongoing arbitrations from October 2015, though it applies only where parties mutually agree. It applies to decisions made on the challenge of an arbitrator and decisions to initiate replacement proceedings and subsequently replace an arbitrator on the ICC Court’s own motion. The ICC Court may also communicate reasons for its decisions on consolidation of arbitration proceedings and prima facie decisions on jurisdiction. The ICC’s note to arbitrators and parties makes clear that the ICC Court retains full discretion to accept or reject a request for communication of reasons.
This move has been widely lauded. Over time, as practitioners become more familiar with the reasoning behind the ICC Court’s administrative decisions, they should feel better able to formulate their arguments in ways designed to appeal to the ICC Court, and will likely be discouraged from making applications which lack merit or which contain arguments substantially similar to those rejected by the ICC Court previously. This should ultimately result in a reduced number of frivolous or speculative applications, thus saving parties, and the ICC Court, time and money. It should be noted that decisions which are communicated to parties will not be made public, and should therefore have no effect on the confidentiality and privacy of proceedings, which parties to arbitration attach significant value to.
In a further move toward increased transparency, in February 2016 the ICC Court announced it had adopted a guidance note for the disclosure of conflicts by arbitrators. The note lists certain situations that may call an arbitrator’s independence or impartiality into question (such as, for example, circumstances in which the arbitrator or his firm represents one of the parties, or has previously acted against one of the parties), although the list is subjective and it remains up to arbitrators themselves to assess whether a disclosure should be made. Importantly, the duty of disclosure is a continuing one, and requires arbitrators to make reasonable enquiries into their records and those of their firm. The ICC has noted that while a failure to disclose will not itself be a ground for disqualification, it will be considered by the ICC Court in assessing whether any objection to or confirmation of a challenge is grounded.
Finally, in January 2016, the ICC Court announced that it will publish on its website the names of arbitrators sitting in ICC cases, their nationality, whether the appointment was made by the ICC Court or by the parties, and which arbitrator is the tribunal chair. This policy applies to all cases registered as from 1 January 2016. The information will be published once the tribunal is constituted, and insofar as the tribunal’s composition changes the information will be updated, although the reason for the change will not be declared. To ensure confidentiality is preserved, the information will not include the case reference number or the names of the parties and counsel.
The ICC will allow parties to opt out of this limited disclosure by mutual agreement. Parties may also request the ICC Court to publish additional information about a particular case. This policy is, however, likely to be of limited practical value. While this will serve as a resource for parties to check to determine which arbitrators have previously served together, it will be limited by the fact that it relates solely to ICC arbitrations, from January 2016, and by the fact that it will provide no information about the nature, complexity and duration of the issues in the case itself, nor the performance or efficiency of the tribunal.
Steps taken by other institutions towards increased transparency
The ICC is far from the only institution seeking to promote increased transparency in the institutional decision-making process. The LCIA has for some time been providing reasons to parties on its decisions in respect of challenges to arbitrators. Indeed, this is specifically provided for in the LCIA Rules 2014 (Article 29.1): “The determinations of the LCIA Court with respect to all matters relating to the arbitration shall be conclusive and binding upon the parties and the Arbitral Tribunal, unless otherwise directed by the LCIA Court. Save for reasoned decisions on arbitral challenges under Article 10, such determinations are to be treated as administrative in nature; and the LCIA Court shall not be required to give reasons for any such determination.”
As with the ICC, the LCIA has also taken other steps toward increased transparency. In November 2015, it published data on the average costs and duration of LCIA arbitrations, stating that it sees it as its “responsibility to contribute to informed decision making” by providing such information. Further, the LCIA Notes for Arbitrators specifically provide that a tribunal should seek to make its final award as soon as reasonably possible following the last submission from the parties, and that it should notify parties and the Registrar of the timetable for the award, in order to “ensure transparency for all involved” in the proceedings.
Similarly, in October 2014 the HKIAC released a Practice Note on the challenge to arbitrators. This note provides that the HKIAC’s determination of a challenge will be communicated to the parties, the challenged arbitrator and, where applicable, other members of the tribunal. It does note, though, that the HKIAC has no obligation to give reasons for its decision, though in practice it usually does provide such reasons.
Finally, the SCC is another institution aiming for increased transparency. In February 2016, it published a report detailing the size of disputes, their length and costs, and the manner in which tribunals ultimately apportion the costs of arbitration and costs for legal representation. The stated aim of this report was to increase confidence and transparency in SCC practice. In April 2015, the SCC published an article on SCC Emergency Arbitrator proceedings which outlined the main issues raised in the four emergency proceedings initiated in 2014, and included the concluding remarks from the 13 emergency proceedings filed with the SCC since 2010.
Whilst anonymised, the report included details of the nationalities of the parties and the amounts in dispute, as well as significant detail on the claims themselves. Finally, while the SCC rules do not require the SCC to provide reasoning for arbitrator challenge decisions, and the draft 2017 Rules which have been published for consultation do not go so far as the LCIA Rules and allow for the communication of decisions on arbitrator challenges, the SCC does periodically publish summaries of its decisions on arbitrator challenges.
It is clear that parties to international arbitration welcome, and will increasingly expect, greater transparency from arbitral institutions (see, in this respect, the QMUL International Arbitration Survey 2015 in which some of the respondents expressed discontent with the lack of insight into the decision-making of arbitral institutions and the efficiency and performance of arbitrators). As more institutions take steps to show they are open about their decision making processes, such transparency will become the norm. Institutions which currently fall short of this norm will, in order to maintain or grow their market share in this highly competitive industry, likely take steps to increase their own transparency. Such moves can only be beneficial to parties and practitioners.
Greater insight into the manner in which institutions approach their decision making will inevitably lead to greater awareness over what is, and what is not, likely to be a successful application, and should limit non-meritorious or frivolous applications, so saving time and money for all concerned. Information about the cost and duration of arbitration should allow parties to make better informed choices about which institution to choose, which will hopefully increase competition between institutions leading to a better deal for parties.
This growing demand for greater transparency from end-users of international arbitration raises the inevitable question: how far do you go? This remains to be seen but it likely that most arbitral institutions will want to reach a sensible balance. The confidentiality of arbitral proceedings remains a significant reason why parties favour arbitration with 33 percent of respondents in the QMUL International Arbitration Survey 2015 citing ‘confidentiality and privacy’ as one of the most valuable characteristics of international arbitration (and notably the in-house counsel sub-group giving the characteristic of confidentiality and privacy even more weight).
Therefore, it is unlikely we will see arbitral institutions going as far as publishing all awards in redacted or summary form in the near term, despite some compelling arguments from arbitration users who feel such a move would be beneficial in giving parties better insight and, ultimately, improving the quality of awards.
Rajinder Bassi is a partner and Jon Newman is an associate at Kirkland & Ellis International LLP. Ms Bassi can be contacted on +44 (0)20 7469 2120 or by email: firstname.lastname@example.org. Mr Newman can be contacted on +44 (0)20 7469 2319 or by email: email@example.com.
© Financier Worldwide
Rajinder Bassi and Jon Newman
Kirkland & Ellis International LLP