Regardless if you see it as being catastrophic or simply weird, for many and varied reasons, 2016 looks set to be a most memorable year. For arbitration lawyers, it could be marked as the year in which investor-state arbitration became a talking point. How do we know this? Well, because 2016 was the year in which BuzzFeed – otherwise known for pop culture, listicles, and lots and lots of cats – published a four part series on investor state dispute settlement (ISDS), entitled Secrets of a Global Super Court.
Amplifying the sense of injustice suggested by the title, the article opens with an invitation to “Imagine a private, global super court that empowers corporations to bend countries to their will”.
Unsurprisingly the tone of the articles is unremittingly hostile to investor-state arbitration, laying out criticisms that it is overly favourable to corporations, that its decisions are opaque. That allowing lawyers to shuffle between arbitrator and counsel roles is akin to them having a “vested interest in expanding the court’s authority”, that shell companies are being formed specifically to take advantage of differing international treaties, and that lawsuits, or the threat of them, is at the same time placing an unfair burden on poorer countries and placing a regulatory chill on their future social and environmental policies.
These are familiar complaints towards the process, and form part of the discussion on the ongoing transformation of arbitration from being a method of resolving specific disputes, to being something like a law making process – with its own judiciary and jurisprudence – as evidenced by the investment court system proposed in the Transatlantic Trade and Investment Partnership (TTIP) negotiations.
Arbitration as ‘lawfare’?
There are aspects of investor state arbitration which do give cause for concern, but the same could well be said of the outcomes of many cases pursued under domestic law – even ones decided at the highest level. And that is where the author of the Buzzfeed article should acknowledge that the examples he provides in the article could benefit from a more nuanced approach.
Take, for instance, the case of Hussain Sajwani and others v Egypt, concerning property deals signed under the Mubarak regime. Following the revolution there, Sajwani was convicted in absentia for corruption, as the new government decided that a purchase Sajwanni had made of some beachfront property, previously owned by the Egyptian State, was illegal (in part because it was alleged to have been underpriced).
Immediately after that conviction, an associate of Sajwani brought a case to the International Centre for Settlement of Investment Disputes (ICSID), which resulted in a settlement. The terms of that confidential settlement, as well as including the dropping of criminal charges against Sajwani, are known to have resulted in a payment to the Egyptian government.
On the face of it that could look like ISDS being used indeed to subvert attempts at transitional justice by using arbitration as ‘lawfare’- and certainly the author was unambiguous as to his view, describing the outcome for Sajwani as “The man who had been convicted of collaborating on a deal that would bilk the Egyptian people out of millions of dollars was now free and clear”.
Behind that however, questions remain. Were criminal charges really the best way for Egypt to proceed in this case? The author notes that one of the grounds for the corruption case was that the land- which had been sold to Sajwani for the purposes of tourism – was illegal because it contained oil deposits and therefore under Egyptian law could not be sold for tourism.
Taking that into account, would it not therefore be better for the new government to, for example, have exercised its powers of eminent domain to return the land to public ownership? If the investors then went on to launch an ICSID claim for illegal expropriation, for example, at least Egypt would have the public purpose defence available against the enforcement of any award. Is it not possible to see the choice of criminal charges – and an in abstentia conviction – as being an attempt by the state to themselves use law as a tool for political ends?
And that is fundamentally the unacknowledged point of the article series; arbitration for foreign investment came to exist precisely to clear away, on the one hand, the potential for prejudice that exists when trying to try the actions of a state in its own courts, and on the other hand to create a means of rectifying wrongs suffered by investors without needing to convince their home states to ‘send a gunboat’.
A need for constructive debate
Furthermore the article appears to present evidence that damages are awarded against poorer countries as proof of the rapacity of the ISDS system, rather than as evidence of its ongoing need. For instance, one of the sidebars in the article, under the title “Shallow Pockets”, highlights that “ISDS lawsuits often target the poorest countries”, and provides examples of high value awards granted against Venezuela, Ecuador and Zimbabwe, as well as their annual budgets.
Again, as a soundbite intended to show multinationals using arbitration as a means of corporate plunder against poor countries, the graphic works. What it does not show however, is that the three countries mentioned are hardly paragons of fair legal process.: Zimbabwe and Venezuela are ranked respectively in 100th and 102nd place – out of 102 countries assessed – in the rule of law index compiled by the World Justice Project. Ecuador performs slightly better, but hardly distinguishes itself in position 77 – and worse, drops to 88th place in the category of ‘Constraints on Government Power’.
The current debates on ICSID and its place in trade agreements can get rather dogmatic. In 2014, Friends of the Earth, for example, concluded their report, The Hidden Cost of EU Trade Deals, with the dogmatic “…no trade deal including ISDS can be acceptable for people or planet”. I have yet to see a counter proposal as to how foreign investments, on which both developed and less developed countries have depended on to facilitate resource extraction, should be protected.
Perhaps critics are quite comfortable with the idea of foreign investors being treated unfairly in national courts. Perhaps they believe there should be no limits on the right of governments to engage in property confiscations. Or perhaps they really would prefer to send a gunboat.
Article written by Peter Boyle.
Image ©Winnie Schwarz, 2016.
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Peter Boyle is currently pursuing an LLM in Public International Law at the University of Kent in Brussels. A UK native, he has been resident in Belgium since 2013.