Niederer Kraft & Frey: Does transparency make arbitration more efficient?

In recent times, a lot has been said and written in favour of, or against, transparency in international commercial arbitration. The transparency discussion has thus far culminated in the promulgation of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration and the new policy adopted by the International Chamber of Commerce (ICC) International Court of Arbitration to publish certain information on arbitrators also in commercial arbitration. According to the ICC Court website, the new policy is ‘aimed at enhancing the efficiency and transparency of arbitration proceedings’. Parties can opt out of this limited disclosure and can request the ICC Court publish additional information about their case. The new rules and policies promoting transparency in arbitration seem to be an attempt by the ICC Court and others to address the increased criticism launched against arbitration in recent times as being an inefficient means to resolve disputes.

Part of the international arbitration community views these steps as commendable, but not far-reaching enough. Calls for a mandatory publication of arbitral awards or for the disclosure of extensive information on arbitrators and their prior appointments on similar cases or those involving the same parties are not uncommon. This article will focus on the question of whether transparency is an adequate means to enhance the efficiency of the arbitral process.

Transparency not a means to increase efficiency

Calls for publication of arbitral awards have their merits, even though it is hard to imagine that this would create a consistent arbitral practice resulting in a significantly more efficient arbitral process. The varying legal frameworks that apply to the arbitral tribunals rendering awards and the diverging backgrounds of arbitrators culturally and through their legal training seem very large obstacles to overcome when it comes to the development of a consistent arbitral practice comparable to the domestic case law of state courts, which could arguably serve to increase efficiency in arbitration. Nevertheless, the publication of arbitral awards – even if not following a consistent line of practice – could still provide meaningful guidance to arbitrators assessing similar cases and could for such reason certainly help in making arbitration more efficient.

Calls for the imposition of rules of transparency on arbitrators have their merits. This holds particularly true when it comes to previous appointments of an arbitrator by a party to the arbitral proceedings in question. Whether the arguments for transparency are equally meritorious when it comes to other matters – eg the disclosure of positions arbitrators have taken on certain questions of law, or the general tendencies of arbitrators, based on past decisions, to decide in favour of certain kinds of parties (as one does sometimes see in investor-state arbitration) – may require further reflection, in particular in terms of how best to implement these measures, while safekeeping the parties’ confidentiality interests in commercial arbitration.

Increased transparency, eg by incorporating the measures discussed above, might help make arbitration more attractive to the user. Whether it will make the arbitral process more efficient and faster is a different question. In particular, the imposition of the aforementioned transparency obligations on arbitrators, while commendable in principle, does not appear to have any effect on the efficiency of the arbitral process. Similarly, while the publication of arbitral awards may have positive effects on the efficiency of arbitral proceedings through guidance they may provide to arbitrators, such publication may also have the exact opposite effect. For instance, a publication of arbitral awards will arguably result in increased scrutiny of such awards by the international arbitration community. This in turn is likely to cause an increased degree of caution on the part of the arbitrators when drafting the award, resulting in a delayed issuance of awards by arbitral tribunals. Obviously, this would run contrary to the objective of enhancing the efficiency of the arbitral process.

The above is debatable and is presently the subject of a very lively discussion within the international arbitration community. Without derogating from the merits of this discussion and the various impacts an increased degree of transparency may have on international commercial arbitration, we submit that transparency is not the main driver, and thus not the best tool, to ensure the efficiency of the arbitral process. Rather, to significantly enhance the efficiency of the arbitral process, the main factors often seen as the true source for delays in the arbitral process should be addressed meaningfully. In this regard, one of the main factors often observed to cause delay in the arbitral process is party conduct. Certainly, there are a variety of means to prevent party conduct aimed at delaying the arbitral process, as a look at the Swiss arbitration framework shows.

Two (exemplary) measures to ensure the efficiency of the arbitral process

Dilatory tactics used by parties to torpedo and delay arbitral proceedings are manifold. It would go far beyond the scope of this article to discuss the wide range of tactics used by parties to delay an arbitral process. For illustrative purposes, we focus on two kinds of tactics known to be used by parties to delay an arbitral process and the manner in which such tactics can be prevented: (i) the seizing of state courts (in lieu of arbitration) in the country where the agreed place of arbitration would be and (ii) the seizing of state courts (in lieu of arbitration) outside the country where the seat of arbitration would be. Both of these tactics, if adopted successfully, will at best result in extensive delays of the arbitral process, and at worst even completely frustrate the process altogether.

To prevent parties from engaging in any of these tactics, Switzerland has adopted two core measures: the principle of the negative effect of Kompetenz-Kompetenz in favour of arbitral tribunals and an exemption of arbitral tribunals from the rules on lis pendens.

1. The negative effect of Kompetenz-Kompetenz

The principle of Kompetenz-Kompetenz grants a reviewing body authority to itself determine its competence to consider the matter under review. The principle of Kompetenz-Kompetenz generally applies to courts, but in many countries it also applies to arbitral tribunals (this in itself already being a measure enhancing the efficiency of arbitral proceedings). In contrast, the negative effect of Kompetenz-Kompetenz of arbitral tribunals does not apply in many countries. In Switzerland, it does apply and ensures that when for dilatory purposes or otherwise a Swiss state court is seized by a party in a matter that prima facie falls within the ambit of an arbitration agreement, the Swiss state court must defer to arbitration and the court’s own Kompetenz-Kompetenz is overridden.

2. Exemption from rules on lis pendens

While the negative effect of Kompetenz-Kompetenz granted to Swiss arbitral tribunals renders any dilatory tactics by means of seizing a Swiss state court in lieu of arbitration ineffective, this measure alone will have limited effect in protecting the efficiency of the arbitral process if parties are not simultaneously prevented from seizing an ‘incompetent’ foreign state court to cause such delay. In contrast to Switzerland, in most countries state courts seized in deviation from an arbitration agreement will not as a rule defer to arbitration, because the negative effect of Kompetenz-Kompetenz on arbitral tribunals does not apply in most countries.

Switzerland has addressed this concern by legislating an exemption for Swiss arbitral tribunals from the rules on lis pendens. Although such legislation can, given the principle of territoriality, not prevent a party from seizing a foreign state court in deviation from an arbitration agreement, it still limits any stalling effects such conduct has on a Swiss arbitral process. In fact, the seizing of a foreign state court in deviation from an arbitration agreement should, given the exemption from the rules of lis pendens, have no impact at all on an arbitral process conducted in Switzerland, whether pending or yet to be commenced. Thus, given the exemption of Swiss arbitral tribunals from the rules on lis pendens, dilatory tactics by means of seizing a foreign state court in lieu of arbitration will not work in Switzerland.

Conclusion

Calls for increased transparency may have their merits and may certainly make the arbitral process more attractive for the user. It is, however, submitted that an increased degree of transparency in arbitration will not protect the efficiency of the arbitral process, which has faced increased criticism lately. Rather, an arbitration-friendly country is well advised to put a legal framework in place that deters parties from engaging in any kind of dilatory tactics, which often cause truly significant delays in the arbitral process. The exemplary measures adopted for such purposes by Switzerland discussed in this article are only two of many ways such a task can be fulfilled and how criticism of inefficiency can be meaningfully addressed.

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