New rules for investment arbitration. But is transparency always good?

11. září 2014  |  Lukáš Hoder

One of the advantages of arbitration – a form of alternative dispute resolution – is that it is discreet. This not only applies to disputes between businessmen but also to investment arbitration between states and foreign investors. However, investment arbitration is now slowly changing, with new transparency rules adopted by UNCITRAL having been introduced in April of this year.

Investment arbitration has been gradually developing over the last twenty years, when many countries (including the Czech Republic) converted to a market economy and attempted to attract foreign investors. The traditional means of attracting investors was through bilateral treaties to protect foreign investment, for example the treaty between the Czech Republic and the Netherlands, but also by acceding to multilateral treaties, such as the Energy Charter Treaty or NAFTA. These treaties contain a number of guarantees for foreign investors who, if their investments are expropriated, can sue the state  before an arbitration court and seek compensation.

This has led to many a dispute between investors and states. One of the most well-known arbitration cases concerns TV NOVA and solar arbitration, which we have discussed here several times. In fact, over the last two decades the Czech Republic has been the defendant in such disputes more than any other country in Europe and students at universities around the world often study its cases, such CME v. the Czech Republic.


If an investor wins the dispute, the award can be quite high, for example more than CZK 10 billion was awarded in the TV NOVA dispute, and hundreds of billions of crowns were awarded in other disputes. Since the money is paid by taxpayers, who are often left with no information on confidential arbitration cases, there is pressure from the EU to increase transparency; it has insisted, for example, that arbitration should be open during negotiations on free trade agreements with Canada and the USA.

One result of this debate – which has already lasted several years now (we wrote about this topic in 2011 and 2013) – was the adoption of the UNCITRAL Rules on Transparency, pursuant to which a number of crucial documents will be published, including an action, replies, arbitration awards, as well as protocols from hearings before arbitration courts. Pursuant to the transparency rules, arbitration court proceedings are to be made public, the parties to a dispute will inform the public that a dispute has commenced, and the arbitration court can allow a third party to express its opinion on the dispute (amicus curiae).

This openness is nevertheless limited. Arbitration courts can decide to make exceptions and keep certain information under their hat, e.g. a country’s classified information or an investor’s confidential information. Information intended for publication will be collected by a special register maintained by the UNCITRAL Secretariat.

Who is affected by the new transparency rules?

The transparency rules will not apply to all investment arbitration automatically as parties can choose to opt in or opt out. As such, the rules will not apply automatically to claims under treaties (BITs) concluded before 1 April 2014 unless both parties to the dispute (investor and sued state) opt in or if the state parties to the treaty (the sued state and the state from which the investor comes) have otherwise opted in to the rules. However, the rules will apply automatically to claims under treaties concluded after 1 April 2014 unless the relevant treaty includes an express opt-out.

Transparency rules apply to arbitration pursuant to UNCITRAL as well as to arbitration under other procedural rules, including ad hoc arbitration where the parties to the dispute determine the procedural rules themselves.

Should all information be published?

Nevertheless, not everybody sees these measures as positive steps. One troublemaker is the Czech Republic, which has not published details about investment disputes more several years. It has a good reason for its approach, however. Other investors can use such information to adjust their strategies and take advantage of legal argumentation in disputes with the state and thus gain a significant upper hand, such as in solar arbitration, where a number of similar disputes exist and where investors certainly welcome knowledge of the state’s defense and its legal arguments.

The debate over the transparency rules reflects a struggle between the EU and EU member states for power and money, which I saw firsthand as a former representative of the Czech Republic in negotiations with UNCITRAL. The struggle is far from trivial either. Who will decide if the state is sued pursuant to an investment treaty concluded by the EU? The EU or the state itself? And who will pay the award of billions of crowns to the investor if the state/EU loses the dispute? 

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