Should there be full and frank financial disclosure in international arbitration?
Matthew Knowles
Noted arbitration practitioner and commentator John Gaffney has raised the interesting question of whether institutional rules should require full and frank financial disclosure by the parties at the early stages of an arbitral proceeding. As he recognises, the proposal gives rise to “many potential problems”. It seems to me that the answer is “no”, but there are aspects of the proposal that may benefit the arbitral process. First of all, some points of principle: • What consequence, if any, should follow from a party’s unwillingness or inability to provide financial comfort? While generally (although not always) of central commercial concern, a party’s financial position is likely to be at most incidental to the merits of any dispute, and is irrelevant to the validity of the arbitration agreement. It should certainly not affect a respondent’s right to be heard fully in its defence nor, subject to certain limitations, a claimant’s right to advance its claim. • If a party considers that its financial circumstances could be a useful lever in resolving a dispute, whether they are in reality stronger or weaker (on a short or long term basis) than perceived to be, it will generally raise those circumstances. • Ability to pay at any point in time prior to delivery of an award does not equal willingness to comply with the award voluntarily, nor should it necessarily do so. • Other issues include whether: - such a change would unduly fail to reflect the differing approaches that national (and supranational) legal systems take to: (a) the allocation of party costs, and (b) ordering security for a respondent’s costs; and - a respondent’s solvency is a matter that the claimant (and any backers) must take a risk upon (in the absence of sufficient evidence to persuade a tribunal or court to order an asset freeze, typically on the basis of risk of dissipation). That said, the principles that inform the proposal – transparency and the tribunal taking a firm case management approach from the outset of an arbitration – are broadly to be applauded. Can these aims be achieved without the need for a new protocol? Existing tribunal powers and voluntary disclosure Tribunals have a number of case management tools at their disposal to protect one party against another’s unduly prejudicial behaviour. These include ordering the preservation of assets (supported by a court order if appropriate), ordering a party to provide security for costs, and a broad discretion when making costs awards. Tribunals can, however, be hesitant to make full use of their powers. This may be due to a desire not to stifle a claim (for whatever reason), or because the use of such tools is not part of their legal tradition or the legal tradition of one or more of the parties and they feel the obligation to adopt a lowest common denominator trans-nationalism. Equally, it can be because they feel that the parties are commercial beasts, have accepted the rules and risks of the game in agreeing to