The House of Lords Conduct Committee agreed recently to a tougher transparency regime for members of the national legislature working for a foreign power

In a decision due to have an impact on the arbitration activities of leading lawyers, on 20 April 2021, the House of Lords Conduct Committee agreed to the tougher transparency regime proposed in their report on “Registration of members’ foreign interests: follow-up (9th Report, HL Paper 255)” (the “Report”)[1]

It followed a lengthy debate,[2] involving senior lawyer-peers, about the requirement to declare work and earnings from foreign governments in a register of interests that would override the duty of confidentiality that counsel and arbitrators owe to their clients.

The Report ultimately concluded that “… the public interest requires absolute transparency when it comes to members of the national legislature working for a foreign power.” (Paragraph 8)

Urging further consideration by the Committee, several peers and prominent members of the legal profession expressed strong concerns about the rule change. Former Solicitor General, Lord Garnier said: “To require the parties to an international commercial arbitration – a confidential way of settling disputes – to surrender their privacy, or to make it impossible for them to employ Members of this House as advocates or arbitrators, will not bother Putin.”

Lord Goldsmith, former Attorney General, said that he may have to take a leave of absence from the Lords as a result of the new disclosure rule, as he believed it would deter clients: “I also act in arbitrations, particularly in disputes about the way a state has treated the investments of the nationals of another. This is an important modern device, which has taken the place of gunboat diplomacy when states would seek to intervene to protect the interests of their nationals.”

Lord Neuberger, former President of the Supreme Court, went further: “Commercial arbitrations, whether international or national, are like court cases save that they are mostly held strictly in private; that is one of arbitration’s principal attractions. They are of enormous benefit to this country financially, and not just to individuals, because we are probably the international arbitration centre – indeed, the international legal centre – of choice in the world…. Normally there is a panel of three arbitrators, one appointed by each party, and the third appointed by the other two. Even though the three arbitrators are paid by the parties, an arbitrator, whoever appoints him or her, has no duties to any party save to conduct the arbitration independently and fairly; in other words, like a judge. Quite why that makes an arbitral appointment disclosable is a mystery to me other than the – perfectly true – point that the arbitrator may be paid by the foreign power if a foreign power is involved. However, there is no duty to the foreign power; indeed there is positively no duty to act in its interest but a duty simply to act like a judge. I therefore question the applicability of these new regulations to arbitration while freely admitting, as I have said, that this is in my personal interest as well.”

Similarly, Lord Grabiner noted: “As other noble Lords have said, [parties] choose English law and London because of the quality and reputation of our legal system and our commercial court, which supervises those arbitrations. They also make that choice because of the world-class reputation of UK-based arbitrators, a significant number of whom are Members of your Lordships’ House… It may not be widely known among your Lordships, most of whom are, thankfully, not lawyers, that the parties to many, if not most, of those arbitrations are foreign and their underlying disputes have no other UK connection. These legal services make a significant contribution to the UK economy. If, as would usually be the case, the parties to the arbitration are not prepared to waive their entitlement to confidentiality and wish to appoint a Member of this House—for example, a retired Supreme Court Justice—as the arbitrator, the effect of the proposal we are discussing is that she or he would either have to decline the appointment or take leave of absence from the House.”

Lord Pannick also said he was “surprised and disappointed” at the move, which he described as “an intrusion”. He continued “The consequence of the Conduct Committee report, if agreed, will be that I and other barristers advising and representing foreign governments will need to tell prospective clients that we cannot any longer offer them the confidentiality to which they are entitled. The inevitable result will be that many of them will decide to seek legal advice and representation elsewhere.”

Baroness Deech expressed the opposing view: “It is quite unrealistic to suggest that, if disclosure were required, London would lose its attraction as an arbitration centre. That is, with respect, to regard too highly the contribution made by the handful of lawyers in this House who would be affected by the rule… In the current climate, it is more important than ever that Members of this House should be clear about their dealings with foreign clients. Any exemption from the proposed new rules risks bringing the reputation of the whole House into disrepute, which most of us very much do not want. Barrister legislators may choose what foreign work to take or not take, bearing in mind their privileged position as parliamentarians. There is, I surmise, no shortage of work for them which does not involve such clients.”

There will be a transitional period for the introduction of the new rule. Any professional relationships with foreign governments which existed on the date the Report was agreed, 2 December 2020, will not be caught by the new requirements at this stage. Members in such a position will have the remainder of 2021 to complete the work, reach an agreement with the client about disclosure, end the relationship, or take leave of absence. However, any new such professional relationship commencing after the Report was agreed will be embarked upon in the full knowledge that it will need to be disclosed, along with the level of remuneration.

Baroness Donaghy noted: “This is a prospective rule, so Members should be telling potential clients that they will be obliged to make these disclosures if taken on. If the client accepts this, then no professional duty of confidentiality will be breached.”

The significance of state involvement in arbitrations and of English arbitrators is shown by the fact that in disputes involving foreign governments, the ICSID Caseload Statistics 2021[3] note that out of the 58 foreign state-investor cases registered under the ICSID Convention and Additional Facility Rules in 2020, there were 14 arbitrators appointed with UK nationality (second only to France on the list of nationality of arbitrators). Further, in the latest caseload statistics for the ICC, 212 of the 869 new cases filed with the ICC in 2019 involved states or state-owned enterprises[4], which represented a more than 60% increase over the previous five years. Additionally there were two cases filed with the ICC in the same year on the basis of bilateral investment treaties (BITs).[5]The statistics also show that the top nationality of arbitrators acting in ICC Arbitrations were from the UK, with 258 arbitrators (17.5%).[6]

With the rule change coming at a time when the House of Commons is dealing with allegations of cronyism and inappropriate lobbying, it remains to be seen whether the Conduct Committee has struck the right balance between transparency and confidentiality, particularly in terms of the potential impact on London’s reputation as a leading arbitration centre.