Challenging the Investment Arbitration Industry- A Presentation by Soumik Chakraborty

7/30/2019 Challenging the Investment Arbitration Industry- A Presentation by Soumik Chakraborty

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CHALLENGING THE INVESTMENT

ARBITRATION INDUSTRY

SOUMIK CHAKRABORTY

THE NATIONAL UNIVERSITY OFADVANCED LEGAL STUDIES


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INTRODUCTION

There is little use in going to law with the devil while

the court is held in hell. These words from an unlikely

sourceHumphrey OSullivan, a 19th

Century Irishschoolmasterbecame a widely used argument by

multinational companies in the last decade as they

justified the construction of an international arbitration

system to decide state-investor disputes


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Governments worldwide signed 3000 internationalinvestment treaties over the last few decades. These

treaties all relied on international tribunals such as the

World Bank-hosted International Centre for Settlementof Investment Disputes.

With these treaties came a boom in cases and the

emergence of a powerful new industry of arbitration

lawyers


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The CELAC-EU Summit, which took place in Chile 26-27 January,

deserves attention for a controversy that erupted around investment issues,

notably the proposed EU wording for the final declaration in support

of providing foreign investors legal certainty.

Several Latin American countries contested this premise. Today, there is agrowing unease among Latin American governments with the international

rules of the game for foreign investment.

They have started to reject the notion that Bilateral Investment Treaties

(BITs) promote development and, instead, have come to see them as tools

that can potentially undermine their development objectives.


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This change of heart has taken place as states

have become the target of multi-million dollar

international lawsuits by corporations for

measures that, at home, were considered part of

the governments duty to protect and improve thelives of its citizens.


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THE ARBITRATION INDUSTRY

Amidst the flurry of treaty-signing, few states paused to consider the

negative implications for public health, the environment, and human rights

that would result from governments putting their regulatory powers in a

legal straitjacket. Almost no-one warned of the small print in the agreements.

This included the granting to corporations of very broad and ill-defined

protection for their investments as well as the exclusive right for

corporations to sue states (states cannot sue corporations) at secretive

international tribunals for actions deemed to unfairly affect investors

profits.


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A new report by Transnational Institute (TNI) andCorporate European Observatory (CEO), Profiting

from Injustice: How law firms, arbitrators and

financers are fuelling an investment arbitration

boom shows that the arbitration industry are far

from neutral guardians, but rather highly active

players, many with strong personal and commercial

ties to multinational companies.


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FINDINGS OF THE REPORT

The legal and arbitration costs average over US$8 million per investor-state

dispute, exceeding US$30 million in some cases.

Three top law firmsFreshfields (UK), White & Case (US) and King & Spalding

(US) are the most active playersacting in 130 investment treaty cases in 2011

alone.

15 arbitrators, nearly all men from Europe, the US or Canada, and referred by some

as an inner mafia, have decided 55% of all known investment-treaty disputes.

Law firms with specialised arbitration departments regularly advise corporations to

sue countries in crisis, most recently Greece and Libya

Investment lawyers have encouraged governments to sign investment treaties using

language that maximises possibilities for litigation. They have then used these

vaguely worded treaty provisions to increase the number of cases.


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Arbitration law firms as well as elite arbitrators actively lobbied against attempts toreform investment agreements in the EU and US in the last four years.

Investment lawyers have a firm grip on academic discourse on investment law and

arbitration, controlling on average 74% of editorial boards of the key journals on

investment law, and frequently failing to disclose the way they personally benefit

from the system.

Speculative financing firms such as Juridica (UK), Burford (US) and Omni

Bridgeway (NL) have already become an established and unregulated part of the

international investment arbitration industry, further fuelling the boom in

arbitrations


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A LITIGATION GOLD RUSH

In 2009, the government of Uruguay, following recommendations from the World

Health Organization, increased the size of health warnings on cigarettes packages.

A year later, it was sued for US$2 billion by tobacco giant Philip Morris which

claimed Uruguay had expropriated its trademark. After an Ecuadorian court ordered Chevron to pay US$18 billion in damages and

clean-up for oil-drilling-related contamination in the Amazonian rainforest,

Chevron counter-sued Ecuador arguing that the government breached its investment

treaty with the US by allowing the legal case to continue.

Law firms alerted investors to the possibility of sueing crisis-affected Greece. The

legal bills were added to the already crushing debt repayments that the Greek

people are shouldering.


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Latin American countries have been taken tointernational courts at least 153 times.

Eastern Europe, Africa, and Asia are the targets in most

of the other cases.

While by 1991, only 24 investor-state disputes had been

recorded, by 2011 there were 450 known cases.

As most arbitration forums take place in secret, the

actual number is likely to be much higher.


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ILL EFFECTS OF SUCH ARBITRATION

In every case, the only judgement considered by arbitrators

is whether a corporate investment was unfairly affected; the

impact on peoples health or environment is usually not

even debated.

A proposal by International Court of Justice Judge Bruno

Simma in 2011 to give greater consideration to international

environmental and human rights law in investment

arbitration was roundly rejected by arbitration lawyers.


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While the boom in investment litigation has created a lucrative

industry for a few lawyers, the report shows that its costs are paid by

taxpayers, including in countries where people do not even have

access to basic services such as Argentina.

The Philippine government spent US$58 million defending two

cases against German airport operator Fraport; money that could

have paid the salaries of 12,500 teachers for one year or vaccinated

3.8 million children against diseases such as TB, diphtheria, tetanusand polio.


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CASE STUDY: LIBYA

On 10 March 2011, a popular uprising against Gaddafi a month before had

turned into a full-scale civil war. On the very same day, a prominent

international law firm, Freshfields Bruckhaus Deringer, also had its eye

on Libya.

They decided to advise multinational corporations on how to defend their

threatened profits in Libya in the midst of a humanitarian crisis. Notably

the briefing suggested corporations could use Bilateral Investment Treaties(BITs) to sue the Libyan state, claiming that investors could claim financial

compensation for Libyas failure to comply with promises to investors

regarding physical security and safety of installations, personnel etc.


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Two months later in May 2011 at the height of NATO bombing, the

international law firm King and Spalding advised multinationals that they

could still sue Libya using BIT rules by arguing that Gaddafi had created

an untenable, unstable and unpredictable investment environment.

The law firm even suggested that it would be possible to make claims

against a possible post-Gaddafi government based on the principle of

continuity of states although it admitted that arbitrators might be

reluctant to impose substantial damages against Libya at a time when it isrecovering from a major political, social, and economic crisis.


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The payouts made by governments in terms of compensation have reached

tens of billions of dollars, with legal fees worth tens of millions of dollars.

They suggest a new breed of international ambulance chasers has

emerged on the global stage.

Ambulance chasers was the term given in the late 19th Century to lawyers

that sought to profit from someones injury or accident.

Today, they are international law firms making money from fuelling

international investment disputeswith devastating social, environmental

and budgetary impacts for sovereign states and ordinary people.


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To maximise their profits, law firms have promoted investment arbitration in

universities, developed funding mechanisms to make it easier to finance cases, and

have lobbied politicians to prevent changes to the investment regime.

By doing so they have maintained and supported an international legal framework

that is structurally biased in favour of corporations and prejudicial against sovereign

states and ordinary people.

International investment arbitration lawyers have largely escaped public attention as

their cases are largely unknown and the vested interests behind and social costs of

their actions are largely hidden from view.

It is time to shine a spotlight on the serious ethical concerns related to the role of

law firms in the international investment regime.


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A RECENT TURNAROUND

Countries have started to realise the injustices and inconsistencies of international

investment arbitration and have initiated a retreat from the system.

In the Spring of 2011, the Australian government announced that it would no longer

include investor-state dispute settlement provisions in its trade agreements.

Bolivia, Ecuador and Venezuela have terminated several investment treaties and

have withdrawn from International Centre for Settlement of Investment Disputes

(ICSID).

South Africa is engaged in a thorough overhaul of its investment policy and has just

announced that it will neither enter into new investment agreements nor renew old

ones due to expire.


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CONCLUSION

Systemic reform, based around principles that consider

human rights and the environment as more important than

corporate profits, can deliver necessary change.

This must start with the termination of existing investment

agreements and a moratorium on signing new ones.

Even within the existing system, there are some steps that

can be taken to help to roll back the power of the arbitration

industry.


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These Steps may be taken:

It is time to call for a switch to independent, transparent adjudicative

bodies, where arbitrators independence and impartiality is secured

The introduction of tough regulations to guard against conflicts of interest

A cap on legal costs

Greater transparency regarding government lobbying by the industry.

These steps will not by themselves transform the investor-state arbitration

system. Without governments turning away from investment arbitration, thesystem will remain skewed in favour of big business and the highly lucrative

arbitration industry.

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Challenging the Investment Arbitration Industry- A Presentation by Soumik Chakraborty

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